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A REVISION OF THE TREATY 

BEING A SEQUEL TO 

THE ECONOMIC CONSEQUENCES 
OF THE PEACE 



MACMILLAN AND CO., Limited 

LONDON • BOMBAY • CALCUTTA • MADRAS 
MELBOURNE 

THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAGO 
DALLAS • SAN FRANCISCO 

THE MACMILLAN CO. OF CANADA, Ltd. 

TORONTO 



A REVISION 
OF THE TREATY 

BEING A SEQUEL TO 

THE ECONOMIC CONSEQUENCES 
OF THE PEACE 



BY 

JOHN MAYNARD KEYNES, C.B. 

FELLOW OF KING'S COLLEGE, CAMBRIDGE 



MACMILLAN AND CO., LIMITED 

ST. MARTIN'S STREET, LONDON 

1922 









°\ 



COPYRIGHT 



FEB -772 ] 

IS 



PRINTED IN GREAT BRITAIN 



:!.Aint.4324 



PEEFACE 

The Economic Consequences of the Peace, which I 
published in December 1919, has been reprinted from 
time to time without revision or correction. So much 
has come to our knowledge since then, that a revised 
edition of that book would be out of place. I have 
thought it better, therefore, to leave it unaltered, and 
to collect together in this Sequel the corrections and 
additions which the flow of events makes necessary, 
together with my reflections on the present facts. 

But this book is strictly what it represents itself 
to be — a Sequel ; I might almost have said an 
Appendix. I have nothing very new to say on the 
fundamental issues. Some of the Remedies which I 
proposed two years ago are now everybody's common- 
places, and I have nothing startling to add to them.. 
My object is a strictly limited one, namely, to provide 
facts and materials for an intelligent review of the 
Reparation Problem, as it now is. 

" The great thing about this wood," said M. 
xClemenceau of his pine forest in La Vendue, " is 
that, here, there is not the slightest chance of meet- 
ing Lloyd George or President Wilson. Nothing, 
here, but the squirrels." I wish that I could claim 
the same advantages for this book. 



J. M. KEYNES. 



King's College, Cambridge, 
December 1921. 

v 



CONTENTS 



CHAPTER I 

PAGE 

The State of Opinion . ... .1 



CHAPTER II 

From the Ratification of the Treaty of Versailles to 

the Second Ultimatum of London ... 8 

Excursus I. — Coal . . . .40 

Excursus II. — The Legality of occupying 

Germany East of the Rhine . . 51 

CHAPTER III 

The Burden of the London Settlement . . 58 

Excursus III. — The Wiesbaden Agreement . 85 
Excursus IV. — The Mark. Exchange . . 92 

CHAPTER IV 

The Reparation Bill . . . . .98 

Excursus V — Receipts and Expenses prior 

to May 1, 1921 . . . .122 

Excursus VI. — ■ The Division of Receipts 

amongst the Allies . . .128 

vii 



A REVISION OF THE TREATY 



CHAPTEE V 

The Legality of the Claim for Pensions 



PAGE 

134 



CHAPTEE VI 

Reparation, Inter-Ally Debt, and International Trade 152 



CHAPTEE VII 

The Revision of the Treaty and the Settlement of 
Europe ...... 



167 



APPENDIX OF DOCUMENTS 

I. Summary of Spa Agreement (July 1920) . 
II. The Decisions of Paris (January 1921) . 

III. The Claims submitted to the Reparation Com 

mission (February 1921) . 

IV. The First Ultimatum of London (March 1921) 

V. The German Counter-Proposal (April 1921) 

VI. The Reparation Commission's Assessment (April 
1921) ..... 

VII. The Second Ultimatum of London (May 1921) 

VIII. Summary of the Wiesbaden Agreement (October 
1921) .... 

IX. Tables of Inter-Governmental Indebtedness 
INDEX ...... 



189 
193 

195 
198 
200 

203 
203 

211 
219 

221 



CHAPTER I 



THE STATE OF OPINION 



It is the method of modern statesmen to talk as 
much folly as the public demand and to practise 
no more of it than is compatible with what they 
have said, trusting that such folly in action as 
must wait on folly in word will soon disclose itself 
as such, and furnish an opportunity for slipping 
back into wisdom, — the Montessori system for the 
child, the Public. He who contradicts this child 
will soon give place to other tutors. Praise, there- 
fore, the beauty of the flames he wishes to touch, the 
music of the breaking toy ; even urge him forward ; 
yet waiting with vigilant care, the wise and kindly 
saviour of Society, for the right moment to snatch 
him back, just singed and now attentive. 

I can conceive for this terrifying statesmanship 
a plausible defence. Mr. Lloyd George took the 
responsibility for a Treaty of Peace, which was not 
wise, which was partly impossible, and which en- 
dangered the life of Europe. He may defend himself 
by saying that he knew that it was not wise and was 

i B 



2 A REVISION OF THE TREATY chap. 

partly impossible and endangered the life of Europe ; 
but that public passions and public ignorance play 
a part in the world of which he who aspires to lead 
a democracy must take account ; that the Peace of 
Versailles was the best momentary settlement which 
the demands of the mob and the characters of the 
chief actors conjoined to permit ; and for the life of 
Europe, that he has spent his skill and strength for 
two years in avoiding or moderating the dangers. 

Such claims would be partly true and cannot be 
brushed away. The private history of the Peace 
Conference, as it has been disclosed by French and 
American participators, displays Mr. Lloyd George in 
a partly favourable light, generally striving against 
the excesses of the Treaty and doing what he could, 
short of risking a personal defeat. The public history 
of the two years which have followed it exhibit him 
as protecting Europe from as many of the evil con- 
sequences of his own Treaty, as it lay in his power 
to prevent, with a craft few could have bettered, 
preserving the peace, though not the prosperity, of 
Europe, seldom expressing the truth, yet often acting 
under its influence. He would claim, therefore, that 
by devious paths, a faithful servant of the possible, 
he was serving Man. 

He may judge rightly that this is the best of 
which a democracy is capable, — to be jockeyed, hum- 
bugged, cajoled along the right road. A preference 
for truth or for sincerity as a method may be a pre- 



I THE STATE OF OPINION 3 

judice based on some aesthetic or personal standard, 
inconsistent, in politics, with practical good. 

We cannot yet tell. Even the public learns by 
experience. Will the charm work still, when the 
stock of statesmen's credibility, accumulated before 
these times, is getting exhausted ? 

In any event, private individuals are not under 
the same obligation as Cabinet Ministers to sacrifice 
veracity to the public weal. It is a permitted self- 
indulgence for a private person to speak and write 
freely. Perhaps it may even contribute one ingredient 
to the congeries of things which the wands of states- 
men cause to work together, so marvellously, for our 
ultimate good. 

For these reasons I do not admit error in having 
based The Economic Consequences of the Peace on a 
literal interpretation of the Treaty of Versailles, or 
in having examined the results of actually carrying 
it out. I argued that much of it was impossible ; 
but I do not agree with many critics, who held that, 
for this very reason, it was also harmless. Inside 
opinion accepted from the beginning many of my 
main conclusions about the Treaty. 1 But it was not 
therefore unimportant that outside opinion should 
accept them also. 

1 " Its merely colourable fulfilment of solemn contracts with a defeated 
nation, its timorous failure to reckon with economic realities," as Professor 
Allyn Young wrote in a review of my book. Yet Professor Young has 
thought right, nevertheless, to make himself a partial apologist of the 
Treaty, and to describe it as " a forward-looking document." 



4 A REVISION OF THE TREATY chap. 

For there are, in the present times, two opinions ; 
not, as in former ages, the true and the false, but 
the outside and the inside ; the opinion of the public 
voiced by the politicians and the newspapers, and 
the opinion of the politicians, the journalists and the 
civil servants, upstairs and backstairs and behind- 
stairs, expressed in limited circles. In time of war 
it became a patriotic duty that the two opinions 
should be as different as possible ; and some seem to 
think it so still. 

This is not entirely new. But there has been a 
change. Some say that Mr. Gladstone was a hypo- 
crite ; yet if so, he dropped no mask in private life. 
The high tragedians, who once ranted in the Parlia- 
ments of the world, continued it at supper afterwards. 
But appearances can no longer be kept up behind 
the scenes. The paint of public life, if it is ruddy 
enough to cross the flaring footlights of to-day, 
cannot be worn in private, — which makes a great 
difference to the psychology of the actors themselves. 
The multitude which lives in the auditorium of the 
world needs something larger than life and plainer 
than the truth. Sound itself travels too slowly in 
this vast theatre, and a true word no longer holds 
when its broken echoes have reached the farthest 
listener. 

Those who live in the limited circles and share the 
inside opinion pay both too much and too little 
attention to the outside opinion ; too much, because, 



THE STATE OF OPINION 



ready in words and promises to concede to it every- 
thing, they regard open opposition as absurdly futile ; 
too little, because they believe that these words and 
promises are so certainly destined to change in due 
season, that it is pedantic, tiresome, and inappropriate 
to analyse their literal meaning and exact conse- 
quences. They know all this nearly as well as the 
critic, who wastes, in their view, his time and his 
emotions in exciting himself too much over what, on 
his own showing, cannot possibly happen. Neverthe- 
less, what is said before the world is, still, of deeper 
consequence than the subterranean breathings and 
well-informed whisperings, knowledge of which allows 
inside opinion to feel superior to outside opinion, 
even at the moment of bowing to it. 

But there is a further complication. In England 
(and perhaps elsewhere also) there are two out- 
side opinions, that which is expressed in the news- 
papers and that which the mass of ordinary men 
privately suspect to be true. These two degrees of 
the outside opinion are much nearer to one another 
than they are to the inside, and under some aspects 
they are identical ; yet there is under the surface a 
real difference between the dogmatism and definite- 
ness of the press and the living, indefinite belief of 
the individual man. I fancy that even in 1919 the 
average Englishman never really believed in the in- 
demnity ; he took it always with a grain of salt, 
with a measure of intellectual doubt. But it seemed 



6 A REVISION OF THE TREATY chap. 

to him that for the time being there could be little 
practical harm in going on the indemnity tack, and 
also that, in relation to his feelings at that time, a 
belief in the possibility of boundless payments by 
Germany was in better sentiment, even if less true, 
than the contrary. Thus the recent modification in 
British outside opinion is only partly intellectual, and 
is due rather to changed conditions ; for it is seen 
that perseverance with the indemnity does now in- 
volve practical harm, whilst the claims of sentiment 
are no longer so decisive. He is therefore prepared 
to attend to arguments, of which he had always been 
aware out of the corner of his eye. 

Foreign observers are apt to heed too little these 
unspoken sensibilities, which the voice of the press 
is bound to express ultimately. Inside opinion 
gradually affects them by percolating to wider and 
wider circles ; and they are susceptible in time to 
argument, common sense, or self-interest. It is the 
business of the modern politician to be accurately 
aware of all three degrees ; he must have enough 
intellect to understand the inside opinion, enough 
sympathy to detect the inner outside opinion, and 
enough brass to express the outer outside opinion. 

Whether this account is true or fanciful, there can 
be no doubt as to the immense change in public 
sentiment over the past two years. The desire for 
a quiet life, for reduced commitments, for comfortable 
terms with our neighbours is now paramount. The 



I THE STATE OF OPINION 7 

megalomania of war has passed away, and every one 
wishes to conform himself with the facts. For these 
reasons the Keparation Chapter of the Treaty of 
Versailles is crumbling. There is little prospect now 
of the disastrous consequences of its fulfilment. 

I undertake in the following chapters a double 
task, beginning with a chronicle of events and a 
statement of the present facts, and concluding with 
proposals of what we ought to do. I naturally attach 
primary importance to the latter. But it is not only 
of historical interest to glance at the recent past. If 
we look back a little closely on the two years which 
have just elapsed (and the general memory unaided 
is now so weak that we know the past little better 
than the future), we shall be chiefly struck, I think, 
by the large element of injurious make-believe. My 
concluding proposals assume that this element of 
make-believe has ceased to be politically necessary ; 
that outside opinion is now ready for inside opinion 
to disclose, and act upon, its secret convictions ; and 
that it is no longer an act of futile indiscretion to 
speak sensibly in public. 



CHAPTER II 

FROM THE RATIFICATION OF THE TREATY OF 
VERSAILLES TO THE SECOND ULTIMATUM OF LONDON 

I. The Execution of the Treaty and the Plebiscites 

The Treaty of Versailles was ratified on January 10, 
1920, and except in the plebiscite areas its territorial 
provisions came into force on that date. The Slesvig 
plebiscite (February and March 1920) awarded the 
north to Denmark and the south to Germany, in 
each case by a decisive majority. The East Prussian 
plebiscite (July 1920) showed an overwhelming 
vote for Germany. The Upper Silesian plebiscite 
(March 1921) yielded a majority of nearly two to 
one in favour of Germany for the province as a whole, 1 
but a majority for Poland in certain areas of the south 
and east. On the basis of this vote, and having 
regard to the industrial unity of certain disputed 

1 More exactly, out of 1,220,000 entitled to vote and 1,186,000 actual 
voters, 707,000 votes or seven-elevenths were cast for Germany, and 479,000 
votes or four-elevenths for Poland. Out of 1522 communes, 844 showed a 
majority for Germany and 678 for Poland. The Polish voters were mainly 
rural, as is shown by the fact that in 36 towns Germany polled 267,000 votes 
against 70,000 for Poland, and in the country 440,000 votes against 409,000 
for Poland. 

8 



ch. ii FROM THE TREATY TO CONFERENCE OF LONDON 9 

areas, the principal Allies, with the exception of 
France, were of opinion that, apart from the south- 
eastern districts of Pless and Rybnik which, although 
they contain undeveloped coalfields of great import- 
ance, are at present agricultural in character, nearly 
the whole of the province should be assigned to 
Germany. Owing to the inability of France to 
accept this solution, the whole problem was referred 
to the League of Nations for final arbitration. This 
body bisected the industrial area in the interests of 
racial or nationalistic justice ; and introduced at the 
same time, in the endeavour to avoid the consequences 
of this bisection, complicated economic provisions of 
doubtful efficiency in the interests of material pros- 
perity. They limited these provisions to fifteen years, 
trusting perhaps that something will have occurred 
to revise their decision before the end of that time. 
Broadly speaking, the frontier has been drawn, 
entirely irrespective of economic considerations, so 
as to include as large as possible a proportion of 
German voters on one side of it and Polish voters on 
the other (although to achieve this result it has been 
thought necessary to assign two almost purely Ger- 
man towns, Kattowitz and Konigshiitte, to Poland). 
From this limited point of view the work may have 
been done fairly. But the Treaty had directed that 
economic and geographical considerations should be 
taken into account also. 

I do not intend to examine in detail the wisdom 



io A REVISION OF THE TREATY chap. 

of this decision. It is believed in Germany that 
subterranean influence brought to bear by France 
contributed to the result. I doubt if this was a 
material factor, except that the officials of the League 
were naturally anxious, in the interests of the League 
itself, to produce a solution which would not be a 
fiasco through the members of the Council of the 
League failing to agree about it amongst them- 
selves ; which inevitably imported a certain bias in 
favour of a solution acceptable to France. The de- 
cision raises, I think, much more fundamental doubts 
about this method of settling international affairs. 

Difficulties do not arise in simple cases. The 
League of Nations will be called in where there is a 
conflict between opposed and incommensurable claims. 
A good decision can only result by impartial, dis- 
interested, very well-informed and authoritative 
persons taking everything into account. Since Inter- 
national Justice is dealing with vast organic units 
and not with a multitude of small units of which 
the individual particularities are best ignored and 
left to average themselves out, it cannot be the 
same thing as the cut - and - dried lawyer's justice 
of the municipal court. It will be a dangerous 
practice, therefore, to entrust the settlement of 
the ancient conflicts now inherent in the tangled 
structure of Europe, to elderly gentlemen from 
South America and the far Asiatic East, who 
will deem it their duty to extract a strict legal 



n FROM THE TREATY TO CONFERENCE OF LONDON n 

interpretation from trie available signed documents, 
— who will, that is to say, take account of as 
few things as possible, in an excusable search for a 
simplicity which is not there. That would only give 
us more judgements of Solomon with the ass's ears, 
a Solomon with the bandaged eyes of law, who, 
when he says " Divide ye the living child in twain," 
means it. 

The Wilsonian dogma, which exalts and dignifies 
the divisions of race and nationality above the bonds 
of trade and culture, and guarantees frontiers but 
not happiness, is deeply embedded in the conception 
of the League of Nations as at present constituted. 
It yields us the paradox that the first experiment in y 
international government should exert its influence 
in the direction of intensifying nationalism. 

These parenthetic reflections have arisen from the 
fact that from a certain limited point of view the 
Council of the League may be able to advance a good 
case in favour of its decision. My criticism strikes 
more deeply than would a mere allegation of partiality. 

With the conclusion of the plebiscites the frontiers 
of Germany were complete. 

In January 1920 Holland was called on to sur- 
render the Kaiser ; and, to the scarcely concealed 
relief of the Governments concerned, she duly refused 
(January 23, 1920). In the same month the surrender 
of some thousands of " war criminals " was claimed, 
but, in the face of a passionate protest from Germany, 



12 A REVISION OF THE TREATY chap. 

was not insisted on. It was arranged instead that, 
in the first instance at least, only a limited number 
of cases should be pursued, not before Allied Courts, 
as provided by the Treaty, but before the High Court 
of Leipzig. Some such cases have been tried ; and 
now, by tacit consent, we hear no more about it. 

On March 13, 1920, an outbreak by the reactionaries 
in Berlin (the Kapp " Putsch ") resulted in their 
holding the capital for five days and in the flight of 
the Ebert Government to Dresden. The defeat of 
this outbreak, largely by means of the weapon of 
the general strike (the first success of which was, it is 
curious to note, in defence of established order), was 
followed by Communist disturbances in Westphalia 
and the Ruhr. In dealing with this second outbreak, 
the German Government despatched more troops into 
the district than was permissible under the Treaty, 
with the result that France seized the opportunity, 
without the concurrence of her Allies, of occupying 
Frankfurt (April 6, 1920) and Darmstadt, this being 
the immediate occasion of the first of the series of 
Allied Conferences recorded below — the Conference 
of San Remo. 

These events, and also doubts as to the capacity 
of the Central German Government to enforce its 
authority in Bavaria, led to successive postponements 
of the completion of disarmament, due under the 
Treaty for March 31, 1920, until its final enforcement 
by the London Ultimatum of May 5, 1921. 



" FROM THE TREATY TO CONFERENCE OF LONDON 13 

There remains Keparation, the chief subject of 
the chronicle which follows. In the course of 1920 
Germany carried out certain specific deliveries and 
restitutions prescribed by the Treaty. A vast quan- 
tity of identifiable property, removed from France and 
Belgium, was duly restored to its owners. 1 The 
Mercantile Marine was surrendered. Some dyestuffs 
were delivered, and a certain quantity of coal. But 
Germany paid no cash, and the real problem of 
Eeparation was still postponed. 2 

With the Conferences of the spring and summer of 
1920 there began the long series of attempts to modify 
the impossibilities of the Treaty and to mould it into 
workable form. 

II. The Conferences of San Remo (April 19-26, 1920), 
Hyihe (May 15 and June 19, 1920), Boulogne 
(June 21-22, 1920), Brussels (July 2-3, 1920), 
and Spa (July 5-16, 1920) 

It is difficult to keep distinct the series of a dozen 
discussions between the Premiers of the Allied 
Powers which occupied the year from April 1920 to 
April 1921. The result of each Conference was 
generally abortive, but the total effect was cumula- 

1 Up to May 31, 1920, securities and other identifiable assets to the value 
of 8300 million francs and 500,000 tons of machinery and raw material had 
been restored to France (Report of Finance Commission of French Chamber, 
June 14, 1920), also 445,000 head of live stock. 

2 Up to May 1921, the cash receipts of the Reparation Commission 
amounted to no more than 124,000,000 gold marks. 



\\ A REVISION OF THE TREATY chap. 

tive ; and by gradual stages the project of revising 
the Treaty gained ground in every quarter. The 
Conferences furnish an extraordinary example of 
Mr. Lloyd George's methods. At each of them he 
pushed the French as far as he could, but not as far 
as he wanted ; and then came home to acclaim the 
settlement provisionally reached (and destined to be 
changed a month later) as an expression of complete 
accord between himself and his French colleague, 
as a nearly perfect embodiment of wisdom, and as 
a settlement which Germany would be well advised 
to accept as final, adding about every third time that, 
if she did not, he would support the invasion of her 
territory. As time went on, his reputation with the 
French was not improved ; yet he steadily gained 
his object, — though this may be ascribed not to the 
superiority of the method as such, but to facts being 
implacably on his side. 

The first of the series, the Conference of San Eemo 
(April 19-26, 1920), was held under the presidency 
of the Italian Premier, Signor Nitti, who did not 
conceal his desire to revise the Treaty. M. Millerand 
stood, of course, for its integrity, whilst Mr. Lloyd 
George (according to Tine Times of that date) occupied 
a middle position. Since it was evident that the 
French would not then accept any new formula, 
Mr. Lloyd George concentrated his forces on arranging 
for a discussion face to face between the Supreme 
Council and the German Government, such a meeting, 



II FROM THE TREATY TO CONFERENCE OF LONDON 15 

extraordinary to relate, having never yet been 
arranged, neither during the Peace Conference nor 
afterwards. Defeated in a proposal to invite German 
representatives to San Remo forthwith, he succeeded 
in carrying a decision to summon them to visit Spa 
in the following month " for the discussion of the 
practical application of the Reparation Clauses." This 
was the first step ; and for the rest the Conference 
contented itself with a Declaration on German Dis- 
armament. Mr. Lloyd George had had to concede 
to M. Millerand that the integrity of the Treaty should 
be maintained ; but speaking in the House of Commons 
on his return home, he admitted a preference for a 
not " too literal " interpretation of it. 

In May the Premiers met in privacy at Hythe 
to consider their course at Spa. The notion of the 
sliding scale, which was to play a great part in 
the Paris Decisions and the Second Ultimatum 
of London, now came definitely on the carpet. A 
Committee of Experts was appointed to prepare 
for examination a scheme by which Germany should 
pay a certain minimum sum each year, supplemented 
by further sums in accordance with her capacity. 
This opened the way for new ideas, but no agreement 
was yet in sight as to actual figures. Meantime the 
Spa Conference was put off for a month. 

In the following month the Premiers met again at 
Boulogne (June 21, 1920), this meeting being preceded 
by an informal week-end at Hythe (June 19, 1920). 



1 6 A REVISION OF THE TREATY chap. 

It was reported that on this occasion the Allies got so 
far as definitely to agree on the principle of minimum 
annuities extensible in accordance with Germany's 
economic revival. Definite figures even were men- 
tioned, namely, a period of thirty -five years and 
minimum annuities of three milliard gold marks. 
The Spa Conference was again put off into the next 
month. 

At last the Spa meeting was really due. Again 
the Premiers met (Brussels, July 2-3, 1920) to 
consider the course they would adopt. They dis- 
cussed many things, especially the proportions in 
which the still.hypothetical Eeparation receipts were to 
be divided amongst the claimants. 1 But no concrete 
scheme was adopted for Eeparation itself. Mean- 
while a memorandum handed in by the German ex- 
perts made it plain that no plan politically possible in 
France was economically possible in Germany. " The 
Note of the German economic experts," wrote The 
Times on July 3, 1920, " is tantamount to a demand 
for a complete revision of the Peace Treaty. The 
Allies have therefore to consider whether they will call 
the Germans sharply to order under the menace of 
definite sanctions, or whether they will risk creating 
the impression of feebleness by dallying with German 
tergiversations." This was a good idea ; if the 
Allies could not agree amongst themselves as to the 
precise way of altering the Treaty, a " complete 

1 See Excursus VI. 



ii FROM THE TREATY TO CONFERENCE OF LONDON 17 

accord " between them could be re-established by 
" calling the Germans sharply to order " for venturing 
to suggest that the Treaty could be altered at all. 

At last, on July 5, 1920, the long-heralded Con- 
ference met. But, although it occupied twelve days, 
no time was found for reaching the item on the agenda 
which it had been primarily summoned to discuss 
— namely, Reparations. Before this dangerous 
topic could be reached urgent engagements recalled 
M. Millerand to Paris. One of the chief subjects actu- 
ally dealt with, coal, is treated in Excursus I. at the 
conclusion of this chapter. But the chief significance 
of the meeting lay in the fact that then for the first 
time the responsible ministers and experts of Germany 
and the Allied States met face to face and used the 
methods of public conference and even private 
intimacy. The Spa Conference produced no plan ; 
but it was the outward sign of some progress under 
the surface. 

III. The Brussels Conference (December 16-22, 1920) 

Whilst the Spa Conference made no attempt to 

discuss the general question of the Reparation 

settlement, it was again agreed that the latter should 

be tackled at an early date. But time passed by, and 

nothing happened. On September 23, 1920, M. 

Millerand succeeded to the Presidency of the French 

Republic, and his place as Premier was taken by 

c 



1 8 A REVISION OF THE TREATY chap. 

M. Leygues. French official opinion steadily receded 
from the concessions, never fully admitted to the 
French public, which Mr. Lloyd George had extracted 
at Boulogne. They now preferred to let the 
machinery of the Reparation Commission run its 
appointed course. At last, however, on November 
6, 1920, after much diplomatic correspondence, it 
was announced that once again the French and 
British Governments were in " complete accord." 
A conference of experts, nominated by the Repara- 
tion Commission, was to sit with German experts 
and report ; then a conference of ministers was to 
meet the German Government and report ; with 
these two reports before it the Reparation Com- 
mission was to fix the amount of Germany's 
liability ; and finally, the heads of the Allied Govern- 
ments were to meet and " take decisions." " Thus," 
The Times recorded, " after long wanderings in the 
wilderness we are back once more at the Treaty of 
Versailles." The re-perusal of old files of newspapers, 
which the industrious author has undertaken, cor- 
roborates, if nothing else does, the words of the 
Preacher and the dustiness of fate. 

The first stage of this long procedure was in fact 
undertaken, and certain permanent officials of the 
Allied Governments 1 met German representatives at 

1 Lord D'Abernon and Sir John Bradbury for Great Britain, Seydoux and 
Cheysson for France, d'Amelio and Giannini for Italy, Delacroix and Lepreux 
for Belgium, and, in accordance with custom, two Japanese. The German 
representatives included Bergmann, Havenstein, Cuno, Melchior, von 
Stauss, Bonn, and Schroeder. 



ii FROM THE TREATY TO CONFERENCE OF LONDON 19 

Brussels, shortly before Christmas 1920, to ascertain 
facts and to explore the situation generally. This was 
a conference of " experts " as distinguished from the 
conferences of " statesmen " which preceded and 
followed it. 

The work of the Brussels experts was so largely 
ignored and overthrown by the meetings of the states- 
men at Paris shortly afterwards, that it is not now 
worth while to review it in detail. It marked, how- 
ever, a new phase in our relations with Germany. The 
officials of the two sides met in an informal fashion 
and talked together like rational beings. They were 
representative of the pick of what might be called 
" international officialdom," cynical, humane, intelli- 
gent, with a strong bias towards facts and a realistic 
treatment. Both sides believed that progress was 
being made towards a solution ; mutual respect was 
fostered ; and a sincere regret was shared at the early 
abandonment of reasonable conversations. 

The Brussels experts did not feel themselves free 
to consider an average payment less than that con- 
templated at Boulogne. They recommended to the 
Allied Governments, accordingly, (1) that during 
the five years from 1921 to 1926 Germany should 
pay an average annuity of £150,000,000 (gold), but 
that this average annuity should be so spread over 
the five years that less than this amount would be 
payable in the first two years and more in the last 
two years, the question of the amount of subsequent 



2 o A REVISION OF THE TREATY chap. 

payments, after the expiry of five years, being 
postponed for the present ; 

(2) That a substantial part of this sum should 
be paid in the form of deliveries of material and not 
of cash ; 

(3) That the annual expenses of the Armies of 
Occupation should be limited to £12,000,000 (gold), 
which payment need not be additional to the above 
annuities but a first charge on them ; 

(4) That the Allies should waive their claim on 
Germany to build ships for them and should perhaps 
relinquish, or postpone, the claim for the delivery 
of a certain number of the existing German vessels ; 

(5) That Germany on her side should put her 
finances and her budget in order and should agree 
to the Allies taking control of her customs in the 
event of default under the above scheme. 

IV. The Decisions of Paris (January 24-30, 1921) 

The suggestions of the Brussels experts furnished 
no permanent settlement of the question, but they 
represented, nevertheless, a great advance from the 
ideas of the Treaty. In the meantime, however, 
opinion in France was rising against the concessions 
contemplated. M. Leygues, it appeared, would be 
unable to carry in the Chamber the scheme discussed 
at Boulogne. Prolonged political intrigue ended in 
the succession of M. Briand to the Premiership, with 



n FROM THE TREATY TO CONFERENCE OF LONDON 21 

the extreme defenders of the literal integrity of the 
Treaty of Versailles, M. Poincare, M. Tardieu, and 
M. Klotz, still in opposition. The projects of Boulogne 
and Brussels were thrown into the melting-pot, and 
another conference was summoned to meet at Paris 
at the end of January 1921. 

It was at first doubtful whether the proceedings 
might not terminate with a breach between the British 
and the French points of view. Mr. Lloyd George 
was justifiably incensed at having to surrender most 
of the ground which had seemed definitely gained at 
Boulogne ; with these fluctuations negotiation was a 
waste of time and progress impossible. He was also 
disinclined to demand payments from Germany which 
all the experts now thought impossible. For a few 
days he was entirely unaccommodating to the French 
contentions ; but as the business proceeded he 
became aware that M. Briand was a kindred spirit, 
and that, whatever nonsense he might talk in public, 
he was secretly quite sensible. A breach in the 
conversations might mean the fall of Briand and the 
entrance to office of the wild men, Poincare and 
Tardieu, who, if their utterances were to be taken 
seriously and were not merely a ruse to obtain office, 
might very well disturb the peace of Europe before 
they could be flung from authority. Was it not 
better that Mr. Lloyd George and M. Briand, both 
secretly sensible, should remain colleagues at the 
expense of a little nonsense in unison for a short 



22 A REVISION OF THE TREATY chap. 

time ? This view of the situation prevailed, and an 
ultimatum was conveyed to Germany on the following 
lines. 1 

The Reparation payments, proposed to Germany by 
the Paris Conference, were made up of a determinate 
part and an indeterminate part. The former con- 
sisted of £100,000,000 per annum for two years, 
£150,000,000 for the next three, then £200,000,000 for 
three more, and £250,000,000 for three after that, and, 
finally, £300,000,000 annually for 31 years, all these 
figures being in terms of gold. The latter (the in- 
determinate part) consisted of an annual sum, addi- 
tional to the above, equal in value to 12 per cent of 
the German exports. The fixed payments under this 
scheme added up to a gross total of £11,300,000,000, 
which was a little less than the gross total contem- 
plated at Boulogne, but, with the export proportion 
added, a far greater sum. 

The indeterminate element renders impossible an 
exact calculation of this burden, and it is no longer 
worth while to go into details. But I calculated at 
the time, without contradiction, that these proposals 
amounted for the normal period to a demand exceed- 
ing £400,000,000 per annum, which is double the 
highest figure that any competent person here or in 
the United States has ever attempted to justify. 

The Paris Decisions, however, coming as they did 
after the discussions of Boulogne and Brussels, were 

1 The text of these Decisions is given in Appendix No. II. 



n FROM THE TREATY TO CONFERENCE OF LONDON 23 

not meant seriously, and were simply another move 
in the game, to give M. Briand a breathing space. I 
wonder if there has ever been anything quite like it 
— best diagnosed perhaps as a consequence of the 
portentous development of " propaganda." The 
monster had escaped from the control of its authors, 
and the extraordinary situation was produced in 
which the most powerful statesmen in the world were 
compelled by forces, which they could not evade, to 
meet together day after day to discuss detailed 
variations of what they knew to be impossible. 

Mr. Lloyd George successfully took care, however, 
that the bark should have no immediate bite behind 
it. The consideration of effective penalties was post- 
poned, and the Germans were invited to attend in 
London in a month's time to convey their answer 
by word of mouth. 

M. Briand duly secured his triumph in the Chamber. 
" Earely," The Times reported, " can M. Briand in all 
his long career as a speaker and Parliamentarian have 
been in better form. The flaying of M. Tardieu was 
intensely dramatic, even if at times almost a little 
painful for the spectators as well as for the victim." 
M. Tardieu had overstated his case, and " roundly 
asserting that the policy of France during the last 
year had been based on the conclusion that the 
financial clauses of the Treaty of Versailles could not 
be executed, had gained considerable applause by 
declaring that this was just the thesis of the pacifist, 



24 A REVISION OF THE TREATY chap. 

Mr. Keynes, and of the German delegate, Count 
Brockdorff-Rantzau," — which was certainly rather un- 
fair to the Paris Decisions. But by that date, even 
in France, to praise the perfections of the Treaty was 
to make oneself ridiculous. " I am an ingenuous 
man," said M. Briand as he mounted the tribune, 
" and when I received from M. Tardieu news that he 
was going to interpellate me, I permitted myself to 
feel a little pleased. I told myself that M. Tardieu 
was one of the principal architects of the Treaty of 
Versailles, and that as such, though he knew its good 
qualities, he would also know its blemishes, and that 
he would, therefore, be indulgent to a man who had 
done his best in fulfilling his duty of applying it — 
mais voila (with a gesture) — I did not stop to remember 
that M. Tardieu had already expended all his stock of 
indulgence upon his own handiwork. ' ' The monstrous 
offspring of propaganda was slowly dying. 

V. The First Conference of London (March 1-7, 1921) 

In Germany the Paris proposals were taken 
seriously and provoked a considerable outcry. But 
Dr. Simons accepted the invitation to London and his 
experts got to work at a counter-proposal. " I was in 
agreement," he said at Stuttgart on February 13, 
" with the representatives of Britain and France at the 
Brussels Conference. The Paris Conference shattered 
that. A catastrophe has occurred. German public 



n FROM THE TREATY TO CONFERENCE OF LONDON 25 

opinion will never forget these figures. Now it is 
impossible to return to the Seydoux plan put forward 
at Brussels (i.e. a provisional settlement for five 
years), for the German people would always see 
enormous demands rising before them like a spectre. 
. . . We shall rather accept unjust dictation than 
sign undertakings we are not firmly persuaded the 
German people can keep." 

On March 1, 1921, Dr. Simons presented his 
counter-proposal to the Allies assembled in London. 
Like the original counter - proposal of Brockdorff- 
Eantzau at Versailles, it was not clear-cut or entirely 
intelligible ; and it was rumoured that the German 
experts were divided in opinion amongst themselves. 
Instead of stating in plain language what Germany 
thought she could perform, Dr. Simons started from 
the figures of the Paris Decisions and then proceeded 
by transparent and futile juggling to reduce them to 
a quite different figure. The process was as follows. 
Take the gross total of the fixed annuities of the 
Paris scheme (i.e. apart from the export proportion), 
namely £11,300,000,000, and calculate its present 
value at 8 per cent interest, namely £2,500,000,000 ; 
deduct from this £1,000,000,000 as the alleged (but 
certainly not the actual) value of Germany's deliveries 
up to date, which leaves £1,500,000,000. This was 
the utmost Germany could pay. If the Allies could 
raise an international loan of £400,000,000, Germany 
would pay the interest and sin king fund on this, and 



26 A REVISION OF THE TREATY chap. 

in addition £50,000,000 a year for five years, towards 
the discharge of the capital sum remaining over and 
above the £400,000,000, namely £1,100,000,000, which 
capital sum, however, would not carry interest pending 
repayment. At the end of five years the rate of re- 
payment would be reconsidered. The whole proposal 
was contingent on the retention of Upper Silesia and 
the removal of all impediments to German trade. 

The actual substance of this proposal was not 
unreasonable and probably as good as the Allies will 
ultimately secure. But the figures were far below 
even those of the Brussels experts, and the mode of 
putting it forward naturally provoked prejudice. It 
was summarily rejected. 

Two days later Mr. Lloyd George read to the 
German Delegation a lecture on the guilt of their 
country, described their proposals as "an offence 
and an exasperation," and alleged that their taxes 
were " ridiculously low compared with Great 
Britain's." He then delivered a formal declaration 
on behalf of the Allies that Germany was in default 
in respect of " the delivery for trial of the criminals 
who have offended against the laws of war, dis- 
armament, and the payment in cash or kind of 
£1,000,000,000 (gold) " ; and concluded with an 
ultimatum * to the effect that unless he heard by 
Monday (March 7) " that Germany was either prepared 
to accept the Paris Decisions or to submit proposals 

1 The full text is given in Appendix No. IV. 



n FROM THE TREATY TO CONFERENCE OF LONDON 27 

which would be in other ways an equally satisfactory 
discharge of her obligations under the Treaty of 
Versailles (subject to the concessions made in the 
Paris proposals)," the Allies would proceed to (1) the 
occupation of Duisberg, Ruhrort, and Diisseldorf on 
the right bank of the Rhine, (2) a levy on all payments 
due to Germany on German goods sent to Allied 
countries, (3) the establishment of a line of Customs 
between the occupied area of Germany and the rest 
of Germany, and (4) the retention of the Customs 
paid on goods entering or leaving the occupied 
area. 

During the next few days negotiations proceeded, 
to no purpose, behind the scenes. At midnight on 
March 6, M. Loucheur and Lord D'Abernon offered 
the Germans the alternative of a fixed payment of 
£150,000,000 for 30 years and an export proportion of 
30 per cent. 1 The formal Conference was resumed on 
March 7. "A crowd gathered outside Lancaster 
House in the morning and cheered Marshal Foch and 
Mr. Lloyd George. Shouts of ' Make them pay, Lloyd 
George ! ' were general. The German delegates were 
regarded with curiosity. General von Seeckt wore 
uniform with a sword. He wore also an eyeglass in 
the approved manner of the Prussian officer and 
bore himself as the incarnation of Prussian mili- 
tarism. Marshal Foch, Field - Marshal Sir Henry 

1 Compare this with the fixed payment of £100,000,000 and an export 
proportion of 26 per cent proposed in the second Ultimatum of London, 
only two months later. 



28 A REVISION OF THE TREATY chap. 

Wilson, and the other Allied soldiers also wore 
uniform." 1 

Dr. Simons communicated his formal reply. He 
would accept the regime of the Paris Decisions as 
fixed for the first five years, provided Germany was 
helped to pay by means of a loan and retained Upper 
Silesia. At the end of five years the Treaty of 
Versailles would resume its authority, the provisions of 
which he preferred, as he was entitled to do, to the pro- 
posals of Paris. "The question of war guilt is to be de- 
cided neither by the Treaty, nor by acknowledgement, 
nor by Sanctions ; only history will be able to decide 
the question as to who was responsible for the world 
war. We are all of us still too near to the event." 
The Sanctions threatened were, he pointed out, all 
of them illegal. Germany could not be technically in 
default in respect of Reparation until the Reparation 
Commission had made the pronouncements due from 
them on May 1. The occupation of further German 
territory was not lawful under the Treaty. The 
retention of part of the value of German goods was 
contrary to undertakings given by the British and 
Belgian Governments. The erection of a special 
Customs tariff in the Rhineland was only permissible 
under Article 270 of the Treaty for the protection of 
the economic interests of the Rhineland population 
and not for the punishment of the whole German 
people in respect of unfulfilled Treaty obligations. 

1 The Times, March 8, 1921. 



n FROM THE TREATY TO CONFERENCE OF LONDON 29 

The arguments as to the illegality of the Sanctions 
were indisputable, and Mr. Lloyd George made no 
attempt to answer them. He announced that the 
Sanctions would be put into operation immediately. 

The rupture of the negotiations was received in 
Paris " with a sigh of relief," 1 and orders were 
telegraphed by Marshal Foch for his troops to march 
at 7 a.m. next morning. 

No new Eeparation scheme, therefore, emerged 
from the Conference of London. Mr. Lloyd George's 
acquiescence in the Decisions of Paris had led him too 
far. Some measure of personal annoyance at the 
demeanour of the German representatives and the 
failure of what, in its inception, may have been 
intended as bluff, had ended in his agreeing to an 
attempt to enforce the Decisions by the invasion of 
Germany. The economic penalties, whether they 
were legal or not, were so obviously ineffective for 
the purpose of collecting money, that they can hardly 
have been intended for that purpose, and were rather 
designed to frighten Germany into putting her name 
to what she could not, and did not intend to perform, 
by threatening a serious step in the direction of the 
policy, openly advocated in certain French quarters, 
of permanently detaching the Rhine provinces from 
the German Commonwealth. The grave feature of 
the Conference of London lay partly in Great Britain's 
lending herself to a furtherance of this policy, and 

1 The Times, March 8, 1921. 



30 A REVISION OF THE TREATY chap. 

partly in contempt for the due form and processes of 
law. 

For it was impossible to defend the legality of the 
occupation of the three towns under the Treaty of 
Versailles. 1 Mr. Lloyd George endeavoured to do so 
in the House of Commons, but at a later stage of the 
debate the contention was virtually abandoned by 
the Attorney-General. 

The object of the Allies was to compel Germany to 
accept the Decisions of Paris. But Germany's refusal 
to accept these proposals was within her rights and 
not contrary to the Treaty, since they lay outside the 
Treaty and included features unauthorised by the 
Treaty which Germany was at liberty either to accept 
or to reject. It was necessary, therefore, for the 
Allies to find some other pretext. Their effort in 
this direction was perfunctory, and consisted, as 
already recorded, in a vague reference to war criminals, 
disarmament, and the payment of 20 milliard gold 
marks. 

The allegation of default in paying the 20 milliard 
gold marks was manifestly untenable at that date 
(March 7, 1921) ; for according to the Treaty, Ger- 
many had to pay this sum by May 1, 1921, " in such 
instalments and in such manner as the Reparation 
Commission may fix," and in March 1921 the 
Reparation Commission had not yet demanded these 

1 A week or two later the German Government made a formal appeal to 
the League of Nations against the legality of this act ; but I am not aware 
that the League took any action on it. 



n FROM THE TREATY TO CONFERENCE OF LONDON 31 

cash payments. 1 But assuming that there had been 
technical default in respect of the war criminals and dis- 
armament (and the original provisions of the Treaty had 
been so constantly modified that it was very difficult to 
say to what extent this was the case), it was our duty 
to state our charges precisely, and, if penalties were 
threatened, to make these penalties dependent on a 
failure to meet our charges. We were not entitled to 
make vague charges, and then threaten penalties 
unless Germany agreed to something which had 
nothing to do with the charges. The Ultimatum of 
March 7 substituted for the Treaty the intermittent 
application of force in exaction of varying demands. 
For whenever Germany was involved in a technical 
breach of any one part of the Treaty, the Allies were, 
apparently, to consider themselves entitled to make 
any changes they saw fit in any other part of the 
Treaty. 

In any case the invasion of Germany beyond the 
Rhine was not a lawful act under the Treaty. This 
question became of even greater importance in the 
following month, when the French announced their 
intention of occupying the Ruhr. The legal issue 
is discussed in Excursus II. at the conclusion of this 
chapter. 

1 A few weeks later the Reparation Commission endeavoured to put 
the action of the Supreme Council in order, by demanding one milliard marks 
in gold (£50,000,000), that is to say, the greater part of the reserve of the 
Reichsbank against its note issue. This demand was afterwards dropped. 



32 A REVISION OF THE TREATY chap. 

VI. The Second Conference of London 
{April 29-May 5, 1921) 

The next two months were stormy. The Sanctions 
embittered the situation in Germany without pro- 
ducing any symptoms of surrender in the German 
Government. Towards the end of March the latter 
sought the intervention of the United States and 
transmitted a new counter - proposal through the 
Government of that country. In addition to being 
straightforward and more precise, this offer was 
materially better than that of Dr. Simons in London 
at the beginning of the month. The chief provisions 1 
were as follows : 

1 . The German liability to be fixed at£2,500,000,000 
(gold) present value. 

2. As much of this as possible to be raised imme- 
diately by an international loan, issued on attractive 
terms, of which the proceeds would be handed over 
to the Allies, and the interest and sinking fund on 
which Germany would bind herself to meet. 

3. Germany to pay interest on the balance at 4 per 
cent for the present. 

4. The sinking fund on the balance to vary with 
the rate of Germany's recovery. 

5. Germany, in part discharge of the above, to 
take upon herself the actual reconstruction of the 
devastated areas on any lines agreeable to the Allies, 

1 The full text is given in Appendix No. V. 



II FROM THE TREATY TO CONFERENCE OF LONDON 33 

and in addition to make deliveries in kind on com- 
mercial lines. 

6. Germany is prepared, "up to her powers of 
performance," to assume the obligations of the Allies 
to America. 

7. As an earnest of her good intentions, she offers 
£50,000,000 (gold) in cash immediately. 

If this is compared with Dr. Simons's first offer, it 
will be seen that it is at least 50 per cent better, 
because there is no longer any talk of deducting from 
the total of £2,500,000,000 an alleged (and in fact 
imaginary) sum of £1,000,000,000 in respect of de- 
liveries prior to May 1, 1921. If we assume an inter- 
national loan of £250,000,000, costing 8 per cent 
for interest and sinking fund, 1 the German offer 
amounted to an immediate payment of £110,000,000 
per annum, with a possibility of an increase latei 
in proportion to the rate of Germany's economic 
recovery. 

The United States Government, having first ascer- 
tained privately that this offer would not be accept- 
able to the Allies, refrained from its formal trans- 
mission. 2 On this account, and also because it was 
overshadowed shortly afterwards by the Second Con- 
ference of London, this very straightforward proposal 
has never received the attention it deserves. It was 

1 The practicability of such a loan on a large scale is of course more 
than doubtful. 

2 The German Government is reported also to have offered, alternatively, 
to accept any sum which the President of the United States might fix. 

D 



34 A REVISION OF THE TREATY chap. 

carefully and precisely drawn up, and probably re- 
presented the full maximum that Germany could 
have performed, if not more. 

But the offer, as I have said, made very little 
impression ; it was largely ignored in the press, and 
scarcely commented on anywhere. For in the two 
months which elapsed between the First and Second 
Conferences of London there were two events of 
great importance, which modified the situation 
materially. 1 

The first of these was the result of the Silesian 
plebiscite held in March 1921. The earlier German 
Keparation offers had all been contingent on her 
retention of Upper Silesia ; and this condition was 
one which, in advance of the plebiscite, the Allies 
were unable to accept. But it now appeared that 
Germany was in fact entitled to most of the country, 
and, possibly, to the greater part of the industrial 
area. But this result also brought to a head the 
acute divergence between the policy of France 
and the policy of the other Allies towards this 
question. 

The second event was the decision of the Repara- 
tion Commission, communicated to Germany on 
April 27, 1921, as to her aggregate liabilities under 
the Treaty. Allied Finance Ministers had fore- 
shadowed 300 milliard gold marks ; at the time of 

1 After the enforcement of the Sanctions and the failure of the counter- 
proposals, the Cabinet of Herr Fehrenbach and Dr. Simons was succeeded 
by that of Dr. Wirth. 



n FROM THE TREATY TO CONFERENCE OF LONDON 35 

the Decisions of Paris, responsible opinion expected 
160-200 milliards l ; and the author of The Economic 
Consequences of the Peace had suffered widespread 
calumny for fixing on the figure of 137 milliards, 2 as 
being the nearest estimate he could make. The 
public, and the Government also, were therefore 
taken by surprise when the Reparation Commission 
announced that they unanimously assessed the figure 
at 132 milliards 2 (i.e. £6,600,000,000 gold). It now 
turned out that the Decisions of Paris, which had 
been represented as a material amelioration of the 
Treaty which Germany was ungrateful not to accept, 
were no such thing ; and that Germany was at that 
moment suffering from an invasion of her territory 
for a refusal to subscribe to terms which were severer 
in some respects than the Treaty itself. I shall 
examine the decision of the Reparation Commission 
in detail in Chapter IV. It put the question on a 
new basis and the Decisions of London could hardly 
have been possible otherwise. 

The decision of the Reparation Commission and 
the arrival of the date, May 1, 1921, fixed in the 
Treaty for the promulgation of a definite Reparation 
scheme, provided a sufficient ground for reopening 
the whole question. Germany had refused the De- 
cisions of Paris ; the Sanctions had failed to move 
her ; the regime of the Treaty was therefore reinstated ; 

1 As late as January 26, 1921, M. Doumer gave a forecast of 240 
milliards. 

* Exclusive of sums due in repayment of war loans made to Belgium. 



36 A REVISION OF THE TREATY chap. 

and under the Treaty it was for the Reparation 
Commission to propose a scheme. 

In these circumstances the Allies met once more 
in London in the closing days of April 1921. The 
scheme there concerted was really the work of the 
Supreme Council, but the forms of the Treaty 
were preserved, and the Reparation Commission 
were summoned from Paris to adopt and pro- 
mulgate as their own the decree of the Supreme 
Council. 

The Conference met in circumstances of great 
tension. M. Briand had found it necessary to placate 
his Chamber by announcing that he intended to 
occupy the Ruhr on May 1. The policy of violence 
and illegality, which began with the Conference of 
Paris, had always included hitherto just a sufficient 
ingredient of make-believe to prevent its being as 
dangerous as it pretended to the peace and prosperity 
of Europe. But a point had now been reached when 
something definite, whether good or bad, seemed 
bound to happen ; and there was every reason for 
anxiety. Mr. Lloyd George and M. Briand had walked 
hand-in-hand to the edge of a precipice ; Mr. Lloyd 
George had looked over the edge ; and M. Briand 
had praised the beauties of the prospect below and 
the exhilarating sensations of a descent. Mr. Lloyd 
George, having indulged to the full his habitual morbid 
taste for looking over, would certainly end in drawing 
back, explaining at the same time how much he 



ii FROM THE TREATY TO CONFERENCE OF LONDON 37 

sympathised with M. Briand's standpoint. But would 
M. Briand ? 

In this atmosphere the Conference met, and, con- 
sidering all the circumstances, including the past 
commitments of the principals, the result was, on the 
whole, a victory for good sense, not least because the 
Allies there decided to return to the pathway of 
legality within the ambit of the Treaty. The new 
proposals, concerted at this Conference, were, whether 
they were practicable or not in execution, a lawful 
development of the Treaty, and in this respect sharply 
distinguished from the Decisions of Paris in the 
January preceding. However bad the Treaty might 
be, the London scheme provided a way of escape 
from a policy worse even than that of the Treaty, — 
acts, that is, of arbitrary lawlessness based on the 
mere possession of superior force. 

In one respect the Second Ultimatum of London 
was lawless ; for it included an illegal threat to occupy 
the Huhr Valley if Germany refused its terms. But 
this was for the sake of M. Briand, whose minimum 
requirement was that he should at least be able to go 
home in a position to use, for conversational purposes, 
the charms of the precipice from which he was hurry- 
ing away. And the Ultimatum made no demand on 
Germany to which she was not already committed by 
her signature to the Treaty. 

For this reason the German Government was right, 
in my judgement, to accept the Ultimatum unqualified, 



38 A REVISION OF THE TREATY chap. 

even though it still included demands impossible of 
fulfilment. For good or ill Germany had signed the 
Treaty. The new scheme added nothing to the 
Treaty's burdens, and, although a reasonable per- 
manent settlement was left where it was before, — in 
the future, — in some respects it abated them. Its 
ratification, in May 1921, was in conformity with the 
Treaty, and merely carried into effect what Germany 
had had reason to anticipate for two years past. It 
did not call on her to do immediately — that is to 
say, in the course of the next six months — anything 
incapable of performance. It wiped out the im- 
possible liability under which she lay of paying forth- 
with a balance of £600,000,000 (gold) due under the 
Treaty on May 1. And, above all, it obviated the 
occupation of the Ruhr and preserved the peace of 
Europe. 

There were those in Germany who held that it 
must be wrong that Germany should under threats 
profess insincerely what she could not perform. But 
the submissive acceptance by Germany of a lawful 
notice under a Treaty she had already signed com- 
mitted her to no such profession, and involved no 
recantation of her recent communication through the 
President of the United States as to what would 
eventually prove in her sincere belief to be the limits 
of practicable performance. 

In the existence of such sentiments, however, 
Germany's chief difficulty lay. It has not been 



n FROM THE TREATY TO CONFERENCE OF LONDON 39 

understood in England or in America how deep a 
wound has been inflicted on Germany's self-respect 
by compelling her, not merely to perform acts, but 
to subscribe to beliefs which she did not in fact 
accept. It is not usual in civilised countries to use 
force to compel wrongdoers to confess, even when we 
are convinced of their guilt ; it is still more barbarous 
to use force, after the fashion of inquisitors, to 
compel adherence to an article of belief because we 
ourselves believe it. Yet towards Germany the Allies 
had appeared to adopt this base and injurious prac- 
tice, and had enforced on this people at the point of 
the bayonet the final humiliation of reciting, through 
the mouths of their representatives, what they believed 
to be untrue. 

But in the Second Ultimatum of London the Allies 
were no longer in this fanatical mood, and no such 
requirement was intended. I hoped, therefore, at 
the time that Germany would accept the notification 
of the Allies and do her best to obey it, trusting that 
the whole world is not unreasonable and unjust, 
whatever the newspapers may say ; that Time is a 
healer and an illuminator ; and that we had still to 
wait a little before Europe and the United States 
could accomplish in wisdom and mercy the economic 
settlement of the war. 



40 A REVISION OF THE TREATY chap. 

EXCURSUS I 

COAL 

The question of coal has considerable importance 
for Reparation, both because (in spite of the exaggera- 
tions of the Treaty) it is a form in which Germany 
can make important payments, and also because of 
the reaction of coal deliveries on Germany's internal 
economy. Up to the middle of 1921 Germany's 
payments for Reparation were almost entirely in the 
form of coal. And coal was the main topic of the 
Spa Conference, where for the first time the Govern- 
ments of the Allies and of Germany met face to 
face. 

Under the terms of the Treaty Germany was to 
deliver 3,400,000 tons of coal per month. For 
reasons explained in detail in The Economic Conse- 
quences of the Peace (pp. 74-89) this total was a 
figure of rhetoric and not capable of realisation. 
Accordingly for the first quarter of 1920 the Repara- 
tion Commission reduced their demand to 1,660,000 
tons per month, and in the second quarter to 1,500,000 
tons per month ; whilst in the second quarter Germany 
actually delivered at the rate of 770,000 tons per 
month. This last figure was unduly low, and by the 
latter date coal was in short supply throughout the 
world and very dear. The main object of the Spa 



ii COAL 41 

Coal Agreement was, therefore, to secure for France 
an increased supply of German coal. 

The Conference was successful in obtaining coal, 
but on terms not unfavourable to Germany. After 
much bargaining the deliveries were fixed at 2,000,000 
tons a month for six months from August 1920. 
But the German representatives succeeded in persuad- 
ing the Allies that they could not deliver this amount 
unless their miners were better fed and that this 
meant foreign credit. The Allies agreed, therefore, 
to pay Germany something substantial for this coal, 
the sums thus received to be utilised in purchasing 
from abroad additional food for the miners. In form, 
the greater part of the sum thus paid was a loan ; 
but, since it was set off as a prior charge against 
the value of Keparation deliveries (e.g. the ships), it 
really amounted to paying back to Germany the value 
of a part of these deliveries. Germany's total cash 
receipts x under these arrangements actually came to 
about 360,000,000 gold marks, 2 which worked out at 
about 40s. per ton averaged over the whole of the 
deliveries. As at this time the German internal 



1 Under the Spa Agreement (see Appendix No. I. ) Germany was to be paid 
in cash 5 gold marks per ton for all coal delivered, and, in the case of coal 
delivered overland, " lent " (i.e. advanced out of Reparation receipts) the 
difference between the German inland price and the British export price. 
At the date of the Spa Conference this difference was about 70s. per ton 
(100s. less 30s.), but this sum was not to be advanced in the case of the 
undetermined amount of coal delivered by sea. The advances were made by 
the Allies in the proportions, 61 per cent by France, 24 per cent by Great 
Britain, and 15 per cent by Belgium and Italy. 

2 For details of these payments see p. 124. 



42 A REVISION OF THE TREATY chap. 

price was from 25s. to 30s. per ton, the German 
Government received in foreign currency substantially 
more than they had to pay for the coal to the 
home producers. The high figure of 2,000,000 tons 
per month involved short supplies to German trans- 
port and industry. But the money was badly wanted, 
and was of the utmost assistance in paying for the 
German food programme (and also in meeting German 
liabilities in respect of pre-war debts) during the 
autumn and winter of 1920. 

This is a convenient point at which to record the 
subsequent history of the coal deliveries. During 
the next six months Germany very nearly fulfilled the 
Spa Agreement, her deliveries towards the 2,000,000 
tons per month being 2,055,227 tons in August, 
2,008,470 tons in September, 2,288,049 tons in October, 
1,912,696 tons in November, 1,791,828 tons in 
December, and 1,678,675 tons in January 1921. At 
the end of January 1921 the Spa Agreement lapsed, 
and since that time Germany has had to continue 
her coal deliveries without any payment or advance 
of cash in return for them. To make up for the 
accumulated deficit under the Spa Agreement, the 
Reparation Commission called for 2,200,000 tons per 
month in February and March, and continued to 
demand this figure in subsequent months. Like so 
much else, however, this demand was only on 
paper. Germany was not able to fulfil it, her actual 
deliveries during the next six months amounting to 



COAL 



43 



1,885,051 tons in February 1921, 1,419,654 tons 
in March, 1,510,332 tons in April, 1,549,768 tons 
in May, 1,453,761 tons in June, and 1,399,132 
tons in July. And the Reparation Commission, not 
really wanting the coal, tacitly acquiesced in these 
quantities. During the first half of 1921 there was, 
in fact, a remarkable reversal of the situation six 
months earlier. In spite of the British Coal Strike, 
France and Belgium, having replenished their stocks 
and suffering from a depression in the iron and steel 
trades, were in risk of being glutted with coal. If 
Germany had complied with the full demands of the 
Reparation Commission the recipients would not 
have known what to do with the deliveries. Even 
as it was, some of the coal received was sold to 
exporters, and the coal miners of France and Belgium 
were in danger of short employment. 

The statistics of the aggregate German output of pit 
coal are now as follows, exclusive of Alsace-Lorraine, 
the Saar, and the Palatinate, in million tons : 





1913. 


1917. 


1918. 


1919. 


1920. 


1921 (first 
nine months). 


Germany exclusive of 
Upper Silesia 

Germany inclusive of 
Upper Silesia 

Per cent of 1913 out- 
put 


130-19 
173-62 
100 


111-66 
154-41 

88-9 


109-54 
148-19 

85-4 


92-76 
117-69 

67-8 


99-66 
131-35 

75-7 


76 06 
100-60 

77-2 



The production of rough lignite (I will not risk 
controversy by attempting to convert this into its 



44 A REVISION OF THE TREATY chap. 

pit-coal equivalent) rose from 87-1 million tons in 
1913 to 93-8 in 1919, 111-6 in 1920, and 90-8 in the 
first three quarters of 1921. 

The Spa Agreement supplied a temporary palliative 
of the anomalous conditions governing the price at 
which these coal deliveries are credited to Germany. 
But with the termination of this Agreement they 
again require attention. Under the Treaty Germany 
is credited in the case of coal delivered overland with 
" the German pithead price to German nationals " 
plus the freight to the frontier ; and in the case of 
coal delivered by sea with the export price ; provided 
in each case this price is not in excess of the British 
export price. Now for various internal reasons the 
German Government have thought fit to maintain 
the pithead price to German nationals far below the 
world price, with the result that she gets credited 
with much less than its real value for her deliveries 
of Reparation coal. During the year ending June 
1921 the average legal maximum price of the different 
kinds of coal was about 270 marks a ton, inclusive 
of a tax of 20 per cent on the price, 1 which at the 
exchange then prevailing was about 20s., i.e. between 
a third and a half of the British price at that date. 
The fall in the mark exchange in the autumn of 1921 
increased the discrepancy. For although the price 
of German coal was substantially increased in terms 

1 This very valuable tax, first imposed in 1917, yielded in 1920-21 mks. 
4 J milliards. 



n COAL 45 

of paper marks, and although the price of British coal 
had fallen sharply, the movements of exchange so 
outdistanced the other factors, that in November 
1921 the price of British coal worked out at about 
three and half times the price of the best bituminous 
coal from the Ruhr. Thus not only were the German 
iron-masters placed in an advantageous position for 
competing with British producers, but the Belgian 
and French industries also benefited artificially 
through the receipt by their Governments of very 
low-priced coal. 

The German Government is in rather a dilemma 
in this matter. An increase in the coal tax is one of 
the most obvious sources for an increased revenue, 
and such a tax would be, from the standpoint of the 
exchequer, twice blessed, since it would increase 
correspondingly the Reparation credits. But on the 
other hand, such a proposal unites two groups against 
them, the industrialists, who want cheap coal for 
industry, and the Socialists, who want cheap coal for 
the domestic stove. From the revenue standpoint 
the tax would probably stand an increase from 20 
per cent to 60 per cent ; but from the political 
standpoint an increase from 20 per cent to 30 per 
cent is the highest contemplated at present, with a 
differential price in favour of domestic consumers. 1 

1 Dr. Wirth's first Government prepared a Bill to raise the tax to 30 
per cent, with power, however, to reduce the rate temporarily to 25 per cent. 
It was estimated that the 30 per cent tax would bring in a revenue of 9-2 
milliard marks. 



46 A REVISION OF THE TREATY chap. 

I take this opportunity of making a few cor- 
rections or amplifications of the passages in The 
Economic Consequences of the Peace which deal with 
coal. 

1. The fate of Upper Silesia is highly relevant to 
some of the conclusions about coal in Chapter IV. of 
The Economic Consequences of the Peace (pp. 77-84). 
I there stated that " German authorities claim, not 
without contradiction, that to judge from the votes 
cast at elections, one-third of the population would 
elect in the Polish interest, and two-thirds in the 
German," which forecast turned out to be in almost 
exact accordance with the facts. I also urged that, 
unless the plebiscite went in a way which I did not 
expect, the industrial districts ought to be assigned 
to Germany. But I felt no confidence, having regard 
to the policy of France, that this would be done ; 
and I allowed, therefore, in my figures for the possi- 
bility that Germany would lose this area. 

The actual decision of the Allies, acting on the 
advice of the Council of the League of Nations to 
whom the matter had been referred, which we have 
discussed briefly above (pp. 9-11), divides the industrial 
triangle between the two claimants to it. According 
to an estimate of the Prussian Ministry of Trade 
86 per cent of the total coal deposits of Upper Silesia 
fall to Poland, leaving 14 per cent to Germany. 
Germany retains a somewhat larger proportion of 
pits in actual operation, 64 per cent of the current 



II COAL 47 

production of coal falling to Poland and 36 per cent 
to Germany. 1 

The figure of 100,000,000 tons, given in The 
Economic Consequences of the Peace for the net German 
production {i.e. deducting consumption at the mines 
themselves) in the near future excluding Upper Silesia, 
should, therefore, be replaced by the figure of (say) 
115,000,000 tons, including such part of Upper Silesia 
as Germany is now to retain. 

2. 1 beg leave to correct a misleading passage in a 
footnote to p. 79 of The Economic Consequences of the 
Peace. I there spoke of " Poland's pre-war annual 
demand " for coal, where I should have said " pre- 
war Poland's pre-war annual demand." The mistake 
was not material, as I allowed for Germany's dimin- 
ished requirements for coal, due to loss of territory, 
in the body of the text. But I confess that the 
footnote, as published, might be deemed misleading. 
At the same time it is, I think, a tribute to the general 
accuracy of The Economic Consequences that partisan 
critics should have fastened so greedily on the omission 
of the word " pre-war " before the word " Poland " 
in the footnote in question. Quite a considerable 
literature has grown up round it. The Polish Diet 

1 The same authority estimates that 85-6 of Upper Silesia's zinc ore 
production and all the zinc smelting works fall to Poland. This is of some 
importance, since before the war Upper Silesia was responsible for 17 per 
cent of the total world production of zinc. Of the iron and steel production 
of the area 63 per cent falls to Poland. I am not in a position to check any 
of these figures. Some authorities ascribe a higher proportion of the coal 
to Poland. 



48 A REVISION OF THE TREATY chap. 

devoted January 20, 1921, to the discussion and 
patriotic analysis of this footnote, and concluded 
with a Resolution ordering the chief speech of the 
occasion (that of Deputy A. Wierzlicki) to be published 
throughout the world in several languages at the 
expense of the State. I apologise for any depreciation 
in the Polish mark for which I may have been so in- 
advertently responsible. Mr. Wierzlicki begins : " A 
book appeared by Keynes . . . the author of a well- 
known work on India, that pearl of the English crown, 
that land which is a beloved subject of study to the 
English. Through such studies a man may win 
himself name and fame," — which was certainly a 
little unscrupulous of me. And he concludes : " But 
England too must believe in facts ! And if Keynes, 
whose book is impregnated with a humpritarian spirit 
and with understanding of the necessity to get up 
beyond selfish interests, if Keynes is convinced by 
actual data that he has done a wrong, that he has 
wrought confusion in the ideas of statesmen and 
politicians as regards Upper Silesia, then he too will 
see with his eyes and must become the friend of 
Poland, of Poland as an active factor in the develop- 
ment of the natural wealth of Silesia." I owe it to 
so generous and eloquent a critic to quote the corrected 
figures, which are as follows : the Polish lands, united 
by the Peace Treaty into the new Polish State, con- 
sumed in 1913 19,445,000 tons of coal, of which 
8,989,000 tons were produced within that area and 



n COAL 49 

7,370,000 tons were imported from Upper Silesia (the 
total production of Upper Silesia in that year being 
43,800,000 tons). 1 The Silesian Plebiscite has been 
preceded and followed by a mass of propagandist 
literature on both sides. For the economic questions 
involved see, particularly, on the Polish side : Wierz- 
licki, The Truth about Upper Silesia ; Olszewski, 
Upper Silesia, Her Influence on the Solvability and 
on the Economic Life of Germany, and The Economic 
Value of Upper Silesia for Poland and Germany respect- 
ively ; and on the German side : Sidney Osborne, The 
Upper Silesian Question and Germany's Coal Problem ; 
The Problem of Upper Silesia (papers by various 
authors, not all on the German side, with excellent 
maps, edited by Sidney Osborne) ; various pamphlets 
by Professor Schulz-Gavernitz, and documents circu- 
lated by the Breslau Chamber of Commerce. 

3. My observations on Germany's capacity to 
deliver reparation coal have been criticised in some 
quarters 2 on the ground that I made insufficient 
allowance for the compensation which is available 
to her by the more intensive exploitation of her 
deposits of lignite or brown coal. This criticism is 
scarcely fair, because I was the first in popular con- 
troversy to call attention to the factor of lignite, and 

1 These are the figures according to the Polish authorities. But it is 
difficult to obtain accurate pre-war figures for an area which was not co- 
terminous with any then existing State ; and these totals have been 
questioned in detail by Dr. W. Schotte. 

2 See e.g. my controversy with M. Brenier hi The Times. 

E 



SO A REVISION OF THE TREATY chap. 

because I was careful from the outset to disclaim 
expert knowledge of the subject. 1 I still find it 
difficult, in the face of conflicting expert opinions, 
to know how much importance to attach to this 
material. Since the Armistice there has been a sub- 
stantial increase in output, which was 36 per cent 
higher in the first half of 1921 than in 1913. 2 In 
view of the acute shortage of coal this output must 
have been of material assistance towards meeting the 
situation. The deposits are near the surface, and no 
great amount of capital or machinery is needed for 
its production. But lignite briquette is a substitute 
for coal for certain purposes only, and the evidence 
is conflicting as to whether any further material 
expansion is economically practicable. 3 

The process of briquetting the rough lignite is 
probably a wasteful one, and it is doubtful whether 

1 In The Economic Consequences of the Peace, p. 84 n., I wrote as follows : 
" The reader must be reminded in particular that the above calculations 
take no account of the German production of lignite. ... I am not 
competent to speak on the extent to which the loss of coal can be made good 
by the extended use of lignite or by economies in its present employment ; 
but some authorities believe that Germany may obtain substantial com- 
pensation for her loss of coal by paying more attention to her deposits of 
lignite." 

2 That is to say, production in the middle of 1921 was at the rate of 
about 120,000,000 tons per annum. At that time the legal maximum price 
was 60 paper marks per ton {i.e. 5s. or less) ; so that the national profit on 
the output in terms of money cannot have been a very material amount. 

3 In order to secure the increased output the number of miners was 
increased much more than in proportion, namely from 59,000 in 1913 to 
171,000 in the first half of 1921. As a result, the cost of production of 
lignite rose much faster than that of coal. Also since its calorific value is 
much less than that of coal per unit of weight (even when it is briquetted), 
it can only compete with coal, unless it is assisted by preferential freight 
rates, within a limited area in the neighbourhood of the mines. 



ii THE LEGALITY OF OCCUPYING GERMANY 51 

it would be worth while to set up new plant with a 
view to production on a larger scale. Some authori- 
ties hold that the real future of lignite and its value 
as an element in the future wealth of Germany lie 
in improved methods of distillation (the chief obstacle 
to which, as also to other uses, lies in its high water 
content), by which the various oils, ammonia and 
benzine, latent in it can be released for commercial 
uses. 

It is certainly the case that the future possibilities 
of lignite should not be overlooked. But there is 
a tendency at present, just as was the case with 
potash some little time ago, to exaggerate its im- 
portance greatly as a decisive factor in the wealth- 
producing capacity of Germany. 



EXCUESUS II 

THE LEGALITY OF OCCUPYING GERMANY EAST 
OF THE RHINE 

The years 1920 and 1921 have been filled with 
excursions and with threats of excursions by the 
French Army into Germany east of the Rhine. In 
March 1920 France, without the approval of her 
Allies, occupied Frankfort and Darmstadt. In July 
1920 a threat to invade Germany by the Allies as a 
whole was successful in enforcing the Spa Agreement. 
In March 1921 a similar threat was unsuccessful in 



52 A REVISION OF THE TREATY chap. 

securing assent to the Paris Decisions, and Duisburg, 
Kuhrort, and Diisseldorf were occupied accordingly. 
In spite of the objections of her Allies France con- 
tinued this occupation when, by the acceptance of 
the second Ultimatum of London, the original 
occasion for it had disappeared, on the ground that 
so long as the Upper Silesian question was unsettled, 
it was in the opinion of Marshal Foch just as well to 
retain this hold. 1 In April 1921 the French Govern- 
ment announced their intention of occupying the 
Euhr, though they were prevented from carrying 
this out by the pressure of the other Allies. In May 
1921 the Second Ultimatum of London was success- 
fully enforced by a threat to occupy the Ruhr Valley. 
Thus, within the space of little more than a year 
the invasion of Germany, beyond the Rhine, was 
threatened five times and actually carried out twice. 
We are supposed to be at peace with Germany, 
and the invasion of a country in time of peace is an 
irregular act, even when the invaded country is not 
in a position to resist. We are also bound by our 
adhesion to the League of Nations to avoid such 
action. It is, however, the contention of France, and 
apparently, from time to time, that of the British 
Government also, that these acts are in some way 
permissible under the Treaty of Versailles, whenever 

1 At the Paris Conference of August 1921 Lord Curzon tried unavailingly 
to persuade France to abandon this illegal occupation. The so-called 
" Economic Sanctions " were raised on October 1, 1921. The Occupation 
still continues, though both the above pretexts have now disappeared. 



n THE LEGALITY OF OCCUPYING GERMANY 53 

Germany is in technical default in regard to any part 
of the Treaty, that is to say, since some parts of 
the Treaty are incapable of literal fulfilment, at any 
time. In particular the French Government main- 
tained in April 1921 that so long as Germany possessed 
any tangible assets, she was in voluntary default in 
respect of Reparation, and that if she was in voluntary 
default any Ally was entitled to invade and pillage 
her territory without being guilty of an act of war. 
In the previous month the Allies as a whole had argued 
that default under Chapters of the Treaty, other than 
the Reparation Chapter, also justified invasion. 

Though the respect shown for legality is now very 
small, the legal position under the Treaty deserves 
nevertheless an exact examination. 

The Treaty of Versailles expressly provides for 
breaches by Germany of the Reparation Chapter. It 
contains no special provision for breaches of other 
Chapters, and such breaches are, therefore, in exactly 
the same position as breaches of any other Treaty. 
Accordingly, I will discuss separately default in 
respect of Reparation, and other defaults. 

Sections 17 and 18 of the Reparation Chapter, 
Annex II., run as follows : 

" (17) In case of default by Germany in the per- 
formance of any obligation under this part of the 
present Treaty, the Commission will forthwith give 
notice of such default to each of the interested Powers, 
and will make such recommendations as to the action 



54 A REVISION OF THE TREATY chap. 

to be taken in consequence of such default as it may 
think necessary. 

" (18) The measures which the Allied and Associ- 
ated Powers shall have the right to take in case of 
voluntary default by Germany, and which Germany 
agrees not to regard as acts of war, may include 
economic and financial prohibitions and reprisals, 
and in general such other measures as the respective 
Governments may determine to be necessary in the 
circumstances." 

There is also a provision in Article 430 of the 
Treaty, by which any part of the occupied area which 
has been evacuated may be reoccupied if Germany 
fails to observe her obligations with regard to 
Reparation. 

The French Government base their contention 
on the words " and in general such other measures " 
in § 18, arguing that this gives them an entirely 
free hand. The sentence taken as a whole, however, 
supports, on the principle of ejusdem generis, the 
interpretation that the other measures contemplated 
are of the nature of economic and financial reprisals. 
This view is confirmed by the fact that the rest of 
the Treaty narrowly limits the rights of occupying 
German territory, which, as M. Tardieu's book shows, 
was the subject of an acute difference of opinion 
between France and her Associates at the Peace 
Conference. There is no provision for occupying 
territory on the right bank of the Rhine ; and the 



ii THE LEGALITY OF OCCUPYING GERMANY 55 

only provision for occupation in the event of default 
is that contained in Article 430. This Article, which 
provides for re-occupation of the left bank in the 
event of default, would have been entirely pointless 
and otiose if the French view were correct. Indeed 
the theory, that at any time during the next thirty 
years any Ally can invade any part of Germany on 
the ground that Germany has not fulfilled every 
letter of the Treaty, is on the face of it unreasonable. 

In any case, however, §§ 17, 18 of Annex II. of 
the Reparation Chapter only operate after a specific 
procedure has been set on foot by the Reparation 
Commission. It is the duty of the Reparation 
Commission to give notice of the default to each of 
the interested Powers, including presumably the 
United States, and to recommend action. If the 
default is voluntary — there is no provision as to who 
is to decide this — then the paragraphs in question 
become operative. There is no warrant here for 
isolated action by a single Ally. And indeed the 
Reparation Commission have never so far put this 
procedure in operation. 

If, on the other hand, Germany is alleged to be 
in default under some other Chapter of the Treaty, 
then the Allies have no recourse except to the League 
of Nations ; and they are bound to bring into opera- 
tion Article 17 of the Covenant, which provides for 
the case of a dispute between a member of the League 
and a non-member. That is to say, apart from 



56 A REVISION OF THE TREATY chap. 

procedure by the Eeparation Commission as set forth 
above, breaches or alleged breaches of this Treaty 
are in precisely the same position as breaches of 
any other treaty between two Powers which are at 
peace. 

According to Article 17, in the event of a dispute 
between a member of the League and a State which 
is not a member of the League, the latter " shall 
be invited to accept the obligations of membership 
in the League for the purposes of such dispute, 
upon such conditions as the Council may deem just. 
If such invitation is accepted, the provisions of 
Articles 12 to 16 inclusive shall be applied, with 
such modifications as may be deemed necessary by 
the Council. Upon such invitation being given, the 
Council shall immediately institute an inquiry into 
the circumstances of the dispute, and recommend such 
action as may seem best and most effectual in the 
circumstances." 

Articles 12 to 16 provide, amongst other things, 
for arbitration in any case of " disputes as to the 
interpretation of a Treaty ; as to any question of 
international law ; as to the existence of any fact 
which, if established, would constitute a breach of any 
international obligation ; or as to the extent and 
nature of the reparation to be made for any such 
breach." 

The Allies as signatories of the Treaty and of the 
Covenant are therefore absolutely precluded, in the 



« THE LEGALITY OF OCCUPYING GERMANY 57 

event of a breach or alleged breach by Germany of 
the Treaty, from proceeding except under the power 
given to the Reparation Commission as stated above, 
or under Article 17 of the Covenant. Any other act 
on their part is illegal. 

In any case it is obligatory on the Council of the 
League, under Article 17, to invite Germany, in the 
event of a dispute between Germany and the Allies, 
to accept the obligations of membership in the 
League for the purposes of such dispute, and to 
institute immediately an inquiry into the circum- 
stances of the dispute. 

In my opinion the protest addressed by the German 
Government to the Council of the League of Nations 
in March 1921 was correctly argued. But, as with 
the inclusion of pensions in the Reparation Bill, we 
reserve the whole stock of our indignation over 
illegality between nations for the occasions when it 
is the fault of others. I am told that to object to this 
is to overlook " the human element " and is therefore 
both wrong and foolish. 



CHAPTER III 

THE BURDEN OF THE LONDON SETTLEMENT 

The settlement of Reparations communicated to 
Germany by the Allied Powers on May 5, 1921, and 
accepted a few days later, constitutes the definitive 
scheme under the Treaty according to which Germany 
for the next two generations is to discharge her 
liabilities. 1 It will not endure. But it is the fait 
accompli ~ of the hour, and, therefore, deserves 
examination. 2 

The settlement falls into three parts, comprising (1) 
provisions for the delivery of Bonds ; (2) provisions 
for setting up in Berlin an Allied Committee of 
Guarantees ; (3) provisions for actual payment in 
cash and kind. 

1. The Delivery of Bonds. — These provisions are 
the latest variant of similar provisions in the Treaty 

1 The preamble states that the settlement is " in accordance with 
Article 233 of the Treaty of Versailles." This Article prescribes that the 
scheme of payments shall provide for the discharge of the liabilities within 
thirty years, any unpaid balance at the end of this period being " postponed " 
or " handled otherwise." In the actual settlement, however, the initial 
limitation to thirty years has been neglected. 

2 This actual text is printed below in full, Appendix No. VII. 

58 



ch. in THE BURDEN OF THE LONDON SETTLEMENT 59 

itself. Allied Finance Ministers have encouraged 
themselves (or their constituents) with the hope that 
some part of the capital sum of Germany's liabilities 
might be anticipated by the sale to private investors 
of Bonds secured on future Reparation payments. 
For this purpose it was necessary that Germany 
should deliver negotiable Bonds. These Bonds do 
not constitute any additional burden on Germany. 
They are simply documents constituting a title to 
the sums which, under other clauses, Germany is to 
pay over annually to the Reparation Commission. 

The advantages to the Allies of marketing such 
Bonds are obvious. If they could get rid of the Bonds 
they would have thrown the risk of Germany's default 
on to others ; they would have interested a great 
number of people all over the world in Germany's 
not defaulting ; and they would have secured the 
actual cash which the exigencies of their Budgets 
demand. But the hope is illusory. When at last 
a real settlement is made, it may be practicable 
for the German Government to float an international 
loan of moderate amount, well within the world's 
estimate of their minimum capacity of payment. 
But, though there are foolish investors in the world, 
it would be sanguine to believe that there are so 
many of such folly as to swallow at this moment 
on these lines a loan of vast dimensions. It costs 
France at the present time somewhere about 10 per 
cent to float a loan of modest dimensions on the 



60 A REVISION OF THE TREATY chap. 

New York market. As the proposed German Bonds 
will carry 5 per cent interest and 1 per cent 
sinking fund, it would be necessary to reduce their 
price to 57 before they would yield 10 per cent 
including redemption. It would be very optimistic, 
therefore, to expect to market them at above half 
their par value. Even so, the world is not likely 
to invest in them any large proportion of its current 
savings, so that the whole amount even of the 
A Bonds, specified below, could not be marketed 
at this price. Moreover, in so far as the service 
of the Bonds marketed is within the minimum 
expectation of Germany's capacity to pay (as it 
would have to be), the financial effect on the Ally 
which markets the Bonds is nearly the same as though 
they were to borrow themselves at the rate in question. 
Except, therefore, in the case of those Allies whose 
credit is inferior to Germany's, the advantage com- 
pared with borrowing on their own credit would not 
be very material. 1 

The details relating to the Bonds are not likely, 
therefore, to be operative, and need not be taken very 
seriously. They are really a relic of the pretences of 
the Peace Conference days. Briefly, the arrangements 
are as follows : 



1 It is not competent for a single Ally (e.g. Portugal) to claim its share of 
the Bonds and market them at the hest price obtainable. Under the Treaty 
of Versailles, Part VIII. Annex II. 13 (b), questions relating to the marketing 
of these Bonds can only be settled by unanimous decision of the Reparation 
Commission. 



in THE BURDEN OF THE LONDON SETTLEMENT 61 

Germany must deliver 12 milliards of gold 
marks (£600,000,000 gold) in A Bonds, 38 milliards 
(£1,900,000,000 gold) in B Bonds, and the balance of 
her liabilities, provisionally estimated at 82 milliards 
(£4,100,000,000 gold), in C Bonds. All the Bonds 
carry 5 per cent interest and 1 per cent cumulative 
sinking fund. The services of the series A, B, and C 
constitute respectively a first, second, and third charge 
on the available funds. The A Bonds are issued 
to the Reparation Commission as from May 1, 1921, 
and the B Bonds as from November 1, 1921, but the 
C Bonds shall not be issued (and shall not carry 
interest in the meantime) except as and when the 
Reparation Commission is of the opinion that the 
payments which Germany is making under the new 
settlement are adequate to provide their service. 

It may be noticed that the service of the A Bonds 
will cost £36,000,000 (gold) per annum, a sum well 
within Germany's capacity, and the service of the 
B Bonds will cost £114,000,000 (gold) per annum, 
making £150,000,000 altogether, a sum in excess of 
my own expectations of what is practicable, but not 
in excess of the figure at which some independent 
experts, whose opinion deserves respect, have esti- 
mated Germany's probable capacity to pay. It 
may also be noticed that the aggregate face value 
of the A and B Bonds (£2,500,000,000 gold) corre- 
sponds to the figure at which the German Government 
have agreed (in their counter-proposal transmitted 



62 A REVISION OF THE TREATY chap. 

to the United States) that their aggregate liability- 
might be assessed. It is probable that, sooner or 
later, the C Bonds at any rate will be not only post- 
poned, but cancelled. 

2. The Committee of Guarantees. — This new body, 
which is to have a permanent office in Berlin, is in 
form and status a sub-commission of the Eeparation 
Commission. Its members consist of representatives 
of the Allies represented on the Reparation Commis- 
sion, with a representative of the United States, if 
that country consents to nominate. 1 To it are 
assigned the various wide and indefinite powers 
accorded by the Treaty of Peace to the Repara- 
tion Commission, for the general control and super- 
vision of Germany's financial system. But its 
exact functions, in practice and in detail, are still 
obscure. 

According to the letter of its constitution the 
Committee might embark on difficult and dangerous 
functions. Accounts are to be opened in the name 
of the Committee, to which will be paid over in gold 
or foreign currency the proceeds of the German Customs, 
26 per cent of the value of all exports, and the proceeds 
of any other taxes which may be assigned as a 
" guarantee " for the payment of Reparation. These 
receipts, however, chiefly accrue not in gold or foreign 
currency, but in paper marks. If the Committee 

1 The Committee is to co-opt three representatives of neutrals when a 
sufficient proportion of the Bonds to justify their representation has been 
marketed on neutral Stock Exchanges. 



in THE BURDEN OF THE LONDON SETTLEMENT 63 

attempts to regulate the conversion of these paper 
marks into foreign currencies, it will in effect become 
responsible for the foreign exchange policy of Germany, 
which it would be much more prudent to leave alone. 
If not, it is difficult to see what the " guarantees " 
really add to the other provisions by which Germany 
binds herself to make payments in foreign money. 

I suspect that the only real and useful purpose of 
the Committee of Guarantees is as an office of the 
Reparation Commission in Berlin, a highly necessary 
adjunct ; and the clause about " guarantees " is 
merely one more of the pretences, which, in all these 
agreements, the requirements of politics intermingle 
with the provisions of finance. It is usual, particularly 
in France, to talk much about " guarantees," by 
which is meant, apparently, some device for making 
sure that the impossible will occur. A " guarantee " 
is not the same thing as a " sanction." When 
M. Briand is accused of weakness at the Second Con- 
ference of London and of abandoning France's " real 
guarantees," these provisions enable him to repudiate 
the charge indignantly. He can point out that the 
Second Conference of London not only set up a 
Committee of Guarantees, but secured, as a new and 
additional guarantee, the German Customs. There 
is no answer to that ! x 

1 And it really is an adequate rejoinder to deputies like M. Forgeot. If 
a partisan or a child wants a silly, harmful thing, it may be better to meet 
him with a silly, harmless thing than with explanations he cannot under- 
stand. This is the traditional wisdom of statesmen and nursemaids. 



64 A REVISION OF THE TREATY chap. 

3. The Provisions for Payment in Cash and Kind. — 
The Bonds and the Guarantees are apparatus and 
incantation. We come now to the solid part of the 
settlement, the provisions for payment. 

Germany is to pay in each year, until her aggregate 
liability is discharged : 

(1) Two milliard gold marks. 1 

(2) A sum equivalent to 26 per cent of the value 
of her exports, or alternatively an equivalent amount 
as fixed in accordance with any other index proposed 
by Germany and accepted by the Commission. 

(1) is to be paid quarterly on January 15, April 15, 
July 15, and October 15 of each year, and (2) is to 
be paid quarterly on February 15, May 15, August 
15, and November 15 of each year. 

This sum, calculated on any reasonable estimate 
of the future value of German exports, is materially 
less than the original demands of the Treaty. 
Germany's total liability under the Treaty amounts 
to 138 milliard gold marks (inclusive of the liability 
for Belgian debt). At 5 per cent interest and 1 per 
cent sinking fund, the annual charge on this would 
be 8-28 milliard gold marks. Under the new scheme 

1 Germany's liabilities are all fixed in terms of gold marks. The value 
of gold in terms of sterling varies, broadly speaking, with the fluctuations 
in the dollar sterling exchange. The following table is convenient for 
converting gold marks into sterling : 

Dollar Sterling Exchange. Value in Sterling of 2000 Gold Marks. 

4-52 £110 

4-14 £120 

3-82 £130 

3-55 £140 



in THE BURDEN OF THE LONDON SETTLEMENT 65 

the annual value of Germany's exports would have to 
rise to the improbable figure of 24 milliard gold marks 
before she would be liable for so much as this. As 
we shall see below, the probable burden of the new 
settlement in the near future is probably not much 
more than half that of the Treaty. 

There is another important respect in which the 
demands of the Treaty are much abated. The Treaty 
included a crushing provision by which the part of 
Germany's nominal liability on which she was not 
able to pay interest in the early years was to accumu- 
late at compound interest. 1 There is no such pro- 
vision in the new scheme ; the C Bonds are not to 
carry interest until the receipts from Germany are 
adequate to meet their service ; and the only pro- 
vision relating to back interest is for the payment of 
simple interest in the event of there being a surplus 
out of the receipts. 

In order to understand how great an advance this 
settlement represented it is necessary to carry our 
minds back to the ideas which were prevalent not 
very long ago. The following table is interesting, 
in which, in order to reduce capital sums and annual 
payments to a common basis of comparison, estimates 
in terms of capital sums are replaced by annuities of 
6 per cent of their amount : 

1 The effect of this provision is discussed in The Economic Consequences 
of the Peace, pp. 152-154. 



66 A REVISION OF THE TREATY chap. 

In terms of Annuities 
Estimates of expressed in Milliards 

of Gold Marks. 

1. Lord Cunliffe and the figure given out in 

the British General Election of 1918 x . 28-8 

2. M. Klotz's forecast in the French Chamber, 

September 5, 1919 .... 18 

3. The Assessment of the Reparation Com- 

mission, April 1921 .... 8-28 

4. The London Settlement, May 1921 . 4-6 2 

The estimate of The Economic Consequences of the 
Peace (1919), namely 2 milliards, was nearly con- 
temporaneous with M. Klotz's figure of 18 milliards. 
M. Tardieu recalls that, when the Peace Conference 
was considering whether a definite figure could be 
inserted in the Treaty, the lowest figure which the 
British and French Prime Ministers would accept, 
as a compromise to meet the pressure put upon them 
by the American representatives, corresponded to an 
annuity of 10-8 milliards, 3 which is nearly two and a 
half times the figure which they accepted two years later 
under the pressure, not of Americans, but of facts. 

There was yet another feature in the London 
Settlement which recommended it to moderate 
opinion. The dates of payment were so arranged as 
to reduce the burden on Germany during the first 
year. The Reparation year runs from May 1 in each 

1 Cf. Baruch, The Making of the Reparation and Economic Sections of the 
Treaty, p. 46 ; and Lamont, What Really Happened at Paris, p. 275. 

2 Assuming exports of 10 milliards, which is double the actual figure of 
1920. 

3 The Truth about the Treaty, p. 305. 



in THE BURDEN OF THE LONDON SETTLEMENT 67 

year to April 30 in the next ; but in the period 
May 1, 1921, to April 30, 1922, only two, instead of 
four, of the quarterly payments in respect of the 
export proportion will fall due. 

No wonder, therefore, that this settlement, so 
reasonable in itself compared with what had preceded 
it, was generally approved and widely accepted as 
a real and permanent solution. But in spite of its 
importance for the time being, as a preservative of 
peace, as affording a breathing space, and as a 
transition from foolish expectations, it cannot be 
a permanent solution. It is, like all its predecessors, 
a temporising measure, which is bound to need 
amendment. 

To calculate the total burden, it is necessary to 
estimate the value of German exports. In 1920 
they amounted to about 5 milliard gold marks. In 
1921 the volume will be greater, but this will be 
offset by the fact that gold prices have fallen to less 
than two-thirds of what they were, so that 4 to 5 
milliard gold marks is quite high enough as a pre- 
liminary forecast for the year commencing May 1, 
1921. 1 It is, of course, impossible to make a close 
estimate for later years. The figures will depend, not 

1 Exports for the six months May-October 1921 were valued at about 
40 milliard paper marks (exclusive, I think, of deliveries of coal and pay- 
ments in kind to the Allies), as against imports valued at 53 milliard 
paper marks. If the monthly export figures are converted into gold marks 
at the average exchange of the month, the exports for the six months work 
out at about 1865 million gold marks, or at the rate of rather less than 4 
milliard gold marks per annum. 



68 A REVISION OF THE TREATY chap. 

only on the recovery of Germany, but on the state 
of international trade generally, and more especially 
on the level of gold prices. 1 For the next two or 
three years, if we are to make an estimate at all, 6 
to 10 milliards is, in my judgement, the best one can 
make. 

Twenty -six per cent of exports, valued at 6 
milliards gold, will amount to about \\ milliard 
gold marks, making, with the fixed annual payment 
of 2 milliards, 3j milliards altogether. If exports 
rise to 10 milliards, the corresponding figure is 4 J 
milliards. The table of payments in the near future 
is then as shown on the next page, all the figures 
being in terms of milliards of gold marks. In the 
case of payments after May 1, 1922, 1 give alternative 
estimates on the basis of exports on the scale of 6 
and 10 milliards respectively. 

Not the whole of these sums need be paid in cash, 
and the value of deliveries in kind is to be credited 
to Germany against them. This item has been 
estimated as high as 1-2 to 1-4 milliard gold marks 
per annum. The result will chiefly depend (1) on 
the amount and price of the coal deliveries, and (2) 

1 In The Economic Consequences of the Peace, p. 189, 1 expressly premised 
that my estimates were based on a value of money not widely different from 
that existing at the date at which I wrote. Since then prices have risen and 
fallen back again. The same proviso is necessary in the case of the present 
estimates. It would have been more practical if, in fixing Germany's 
liability in terms of money for a long period of years, some provision had 
been made for adjusting the real burden in accordance with fluctuations in 
the value of money during the period of payment. 



THE BURDEN OF THE LONDON SETTLEMENT 



69 



on the degree of success which attends the negotiations 
between France and Germany for the supply by the 
latter of materials required for the repair of the 
devastated area. The value of the coal deliveries 
depends on factors already discussed on p. 44 above, 
the price of the coal being chiefly governed by the 





1921-22 (Exports 
4 Milliards). 


1922-23 and 
subsequently 

(Exports 
6 Milliards). 


1922-23 and 
subsequently 

(Exports 
10 Milliards). 


May 25 
July 15 
Aug. 15 
Oct. 15 


\ 


1-00 


•39 
•50 
•39 
•50 


•65 
•50 
•65 
•50 


Nov. 15 




•26 


•39 


•65 


Jan. 15 




•50 


•50 


•50 


Feb. 15 




•26 


•39 


•65 


April 15 




•50 


•50 


•50 


Total . 


2-52 


3-56 


4-60 


Equivalent in ster- ] 








ling at a dollar ex- \ 
change 1 of $4=£l] 


£156,000,000 


£221,000,000 


£286,000,000 



internal German price. At a price of 20 gold marks 
per ton and deliveries of 2,000,000 tons a month 
(neither of which figures are likely to be exceeded, 
or even reached, in the near future), coal will yield 
credits of -48 milliard gold marks. In the Loucheur- 
Rathenau Agreement 2 the value of deliveries in kind 

1 I take this as a round figure, not as a prediction of the dollar exchange. 
The necessary adjustment can be made, in accordance with the actual course 
of exchange, by reference to the table on p. 64 above. 

2 See Excursus III. 



70 A REVISION OF THE TREATY chap. 

to France, including coal, over the next five years has 
been estimated at a possible total of 1-4 milliard gold 
marks per annum. If France receives '4 milliard 
gold marks in coal, not more than 35 per cent of the 
balance will be credited in the Reparation account. 
If this were realised, the aggregate deliveries in kind 
might approach 1 milliard. But, for various reasons, 
political and economic, this figure is unlikely to be 
reached, and if as much as -75 milliards per annum is 
realised from coal and reconstruction deliveries, this 
ought to be considered a highly satisfactory result. 

Now the payments were so arranged as to present 
no insuperable difficulties during 1921. The instal- 
ment of August 31, 1921 (which did not exceed the 
sum which the Germans had themselves offered for 
immediate payment in their counter-proposal of 
April 1921) was duly paid, partly out of foreign 
balances accumulated before May 1 last, partly 
by selling out paper marks over the foreign exchanges, 
and partly by temporary advances from an inter- 
national group of bankers. The instalment of 
November 15, 1921, was covered by the value of 
deliveries of coal and other material subsequent to 
May 1, 1921. Even the instalments of January 
15 and February 15, 1922, might be covered out 
of further deliveries, temporary advances, and the 
foreign assets of German industrialists, if the German 
Government could get hold of them. But the pay- 
ment of April 15, 1922, must present more difficulty ; 



in THE BURDEN OF THE LONDON SETTLEMENT 71 

whilst further instalments follow quickly on May 15, 
July 15, and August 15. Some time between 
February and August 1922 Germany will succumb 
to an inevitable default. This is the maximum extent 
of our breathing space. 1 

That is to say, in so far as she depends for payment 
(as in the long run she must do) on current income. 
If capital, non - recurrent resources become avail- 
able, the above conclusion will require modification 
accordingly. Germany still has an important capital 
asset untouched — the property of her nationals now 
sequestered in the hands of the Enemy -Property 
Custodian in the United States, of which the value is 
rather more than 1 milliard gold marks. If this 
were to become available for Reparation, directly or 
indirectly, default could be delayed correspondingly. 2 

1 I first published this prediction in August 1921. As this book goes to 
press, the German Government have notified the Reparation Commission 
(December 15, 1921) that, having failed in their attempt to secure a foreign 
loan, they cannot find, apart from deliveries in kind, more than 150 or 200 
million gold marks towards the instalments of January and February 1922. 

2 The United States has the right to retain and liquidate all pro- 
perty, rights, and interests belonging to German nationals and lying 
within the territories, colonies, and possessions of the United States on 
January 10, 1920. The proceeds of such liquidation are at the disposal 
of the United States "in accordance with its laws and regulations," that 
is to say, at the disposal of Congress within the limitations of the 
Constitution, and may be applied by them in any of the three following 
ways : (1) the assets in question may be returned to their original German 
owners ; (2) they may be applied to the discharge of claims by United 
States nationals with regard to their property, rights, and interests in 
German territory, or debts owing to them by German nationals, or to the 
payment of claims growing out of acts of the German Government after the 
United States entered the war, and also to the discharge of similar American 
claims in respect of those of Germany's Allies against whom the United 
States was at war ; (3) they may be turned over to the Reparation Commis- 
sion as a credit to Germany. 



72 A REVISION OF THE TREATY chap. 

Similarly the grant to Germany of foreign credits on 
a substantial scale, even three-months' credits from 
bankers on the security of the Reichsbank's gold, 
would postpone the date a little, however useless in 
the long run. 

In reaching this conclusion, one can approach the 
problem from three points of view : (1) the problem of 
paying outside Germany, that is to say, the problem 
of exports and the balance of trade ; (2) the problem 
of providing for payment by taxation, that is to say, 
the problem of the Budget ; (3) the proportion of the 
sums demanded to the German national income. 
I will take them in turn, confining myself to what 
Germany can be expected to perform in the 
near future, to the exclusion of what she might 
do in hypothetical circumstances many years 
hence. 

(1) In order that Germany may be able to make 
payments abroad, it is necessary, not only that she 
should have exports, but that she should have a 
surplus of exports over imports. In 1920, the last 
complete year for which figures are available, so 
far from a surplus there was a deficit, the exports 
being valued at about 5 milliard gold marks and the 
imports at 5-4 milliards. The figures for 1921 so far 
available indicate, not an improvement, but a 
deterioration. The myth that Germany is carrying 
on a vast and increasing export trade is so wide- 
spread, that the actual figures for the six months 



in THE BURDEN OF THE LONDON SETTLEMENT 73 

from May to October 1921, converted into gold 
marks, may be given with advantage : 







Million Paper Marks. 


Million Gold Marks.i 




Imports. 


Exports. 


Imports. 


Exports. 


Excess of 
Imports. 


1921 


May 


5,487 


4,512 


374-4 


307-9 


66-5 




June 


6,409 


5,433 


388-8 


329-7 


591 




July 


7,580 


6,208 


413-7 


338-7 


75-0 




August . 


9,418 


6,684 


477-2 


334-8 


142-4 




September 


10,668 


7,519 


436-6 


307-7 


128-9 




October 2 
[ for six months 


13,900 


9,700 


352-6 


2460 


106-6 


Tota 


53,462 


40,056 


2443-3 


1864-8 


578-5 



In respect of these six months Germany must make 
a fixed payment of 1000 million gold marks plus 
26 per cent of the exports as above, namely 484-8 
million gold marks, that is 1484-8 million gold marks 
altogether, which is equal to about 80 per cent of 
her exports ; whereas apart from any Reparation 
payments, she had a deficit on her foreign trade at 
the rate of more than 1 milliard gold marks per 
annum. The bulk of Germany's imports are necessary 
either to her industries or to the food supply of the 
country. It is therefore certain that with exports 
of (say) 6 milliards she could not cut her imports so 
low as to have the surplus of 3| milliards, which 

1 The rates for conversion of paper marks into gold marks have been 
taken as follows : Number of paper marks per 100 gold marks in May 
1465-5, June 1647-9, July 1832, August 1996-4, September 2443-2, October 
3942-6. 

2 Provisional figures. 



74 A HE VISION OF THE TREATY chap. 

would be necessary to meet her Eeparation liabilities. 
If, however, her exports were to rise to 10 milliards, 
her Eeparation liabilities would become 4-6 milliards. 
Germany, to meet her liabilities, must therefore raise 
the gold- value of her exports to double what they were 
in 1920 and 1921 without increasing her imports at all. 

I do not say that this is impossible, given time and 
an overwhelming motive, and with active assistance 
by the Allies to Germany's export industries ; but does 
any one think it practicable or likely in the actual 
circumstances of the case ? And if Germany 
succeeded, would not this vast expansion of exports, 
unbalanced by imports, be considered by our manu- 
facturers to be her crowning crime ? That this should 
be the case even under the London Settlement of 
1921 is a measure of the ludicrous folly of the figures 
given out in the General Election of 1918, which were 
six times as high again. 

(2) Next there is the problem of the Budget. For 
Reparation payments are a liability of the German 
Government and must be covered by taxation. At 
this point it is necessary to introduce an assumption 
as to the relation between the gold mark and the 
paper mark. For whilst the liability is fixed in terms 
of gold marks, the revenue (or the bulk of it) is 
collected in terms of paper marks. The relation is a 
very fluctuating one, best measured by the exchange 
value of the paper mark in terms of American gold 
dollars. This fluctuation is of more importance over 



HI THE BURDEN OF THE LONDON SETTLEMENT 75 

short periods than in the long run. For in the long 
run all values in Germany, including the yield of 
taxation, will tend to adjust themselves to an apprecia- 
tion or depreciation in the value of the paper mark 
outside Germany. But the process may be a very 
slow one, and, over the period covered by a year's 
budget, unanticipated fluctuations in the ratio of the 
gold to the paper mark may upset entirely the financial 
arrangements of the German Treasury. 

This disturbance has of course occurred on an 
unprecedented scale during the latter half of 1921. 
Taxation in terms of paper marks, which was heavy 
when the £ sterling was worth 200 paper marks, 
becomes very inadequate when the £ sterling is 
worth 1000 paper marks ; but it is beyond the 
power of any Finance Minister to adjust taxation to 
such a situation quickly. In the first place, when the 
fall in the external value of the mark is proceeding 
rapidly, the corresponding fall in the internal value 
lags far behind. Until this adjustment has taken 
place, which may occupy a considerable time before 
it is complete, the taxable capacity of the people, 
measured in gold, is less than it was before. But 
even then a further interval must elapse before the 
gold-value of the yield of taxation collectible in paper 
marks can catch up. The experience of the British 
Inland Revenue Department well shows that the 
yield of direct taxation must largely depend on the 
taxable assessments of the previous period. 



76 A REVISION OF THE TREATY chap. 

For these reasons the collapse of the mark exchange 
must, if it persists, destroy beyond repair the Budget 
of 1921-22, and probably that of the first half of 
1922-23 also. But I should be overstating my 
argument if I were to base my conclusions on the 
figures current at the end of 1921. In the shifting 
sands in which the mark is foundering it is difficult 
to find for one's argument any secure foothold. 

During the summer of 1921 the gold mark was 
worth, in round figures, 20 paper marks. The internal 
purchasing power of the paper mark for the purposes 
of working-class consumption was still nearly double 
its corresponding value abroad, so that one could 
scarcely say that equilibrium had been established. 
Nevertheless, the position was very well adjusted 
compared with what it has since become. As I 
write (December 1921) the gold mark has been 
fluctuating between 45 and 60 paper marks, while the 
purchasing power of the paper mark inside Germany 
is for general purposes perhaps three times what it is 
outside Germany. 

Since my figures of Government revenue and 
expenditure are based on statements made in the 
summer of 1921, perhaps my best course is to take 
a figure of 20 paper marks to the gold mark. The 
effect of this will be to understate my argument rather 
than the contrary. The reader must remember that, 
if the mark remains at its present exchange value long 
enough for internal values to adjust themselves to 



in THE BURDEN OF THE LONDON SETTLEMENT 77 

that rate, the items in the following account, the 
income and the outgoings and the deficit, will all 
tend to be multiplied threefold. 

At v this ratio (of 20 paper marks = 1 gold mark) a 
Reparation liability of 3| milliard gold marks (assum- 
ing exports on the scale of 6 milliards) is equivalent 
to 70 milliard paper marks, and a liability of 4j 
milliards (assuming exports of 10 milliards) is equiva- 
lent to 90 milliard paper marks. The German Budget 
for the financial year April 1, 1921 to March 31, 1922 
provided for an expenditure of 93-5 milliards, exclusive 
of Reparation payments, and for a revenue of 59 
milliards. 1 Thus the present Reparation demand 
would by itself absorb more than the whole of the 
existing revenue. Doubtless expenditure can be cut 
down, and revenue somewhat increased. But the 
Budget will not cover even the lower scale of the 
Reparation payments unless expenditure is halved 
and revenue doubled. 2 

1 The ordinary revenue and expenditure were estimated to balance at 
48-48 milliard paper marks. The extraordinary expenditure was estimated 
at 59-68 milliards, making a total expenditure of 108-16 milliards. Included 
in this, however, were 146 milliards for various Reparation items. These 
are in respect of various pre-May 1, 1921 items and do not allow for pay- 
ments under the London Settlement ; but to avoid confusion I have deducted 
these from the estimate of expenditure as stated above. The extraordinary 
revenue was estimated at 10 - 5 milliards, making a total revenue of 58-98 
milliards. 

2 I have allowed nothing so far for the costs of the Armies of Occupation, 
which, under the letter of the Treaty, Germany is under obligation to pay 
in addition to the sums due for Reparation proper. As these charges rank 
in priority ahead of Reparation, and as the London Agreement does not 
deal with them, I think Germany is liable to be called on to pay these as 
they accrue in addition to the annuities fixed in the London Settlement. 



78 A RE VISION OF THE TREA TY chap. 

If the German Budget for 1922-23 manages to 
balance, apart from any provision for Reparation, this 
will represent a great effort and a considerable achieve- 
ment. Apart, however, from the technical financial 
difficulties, there is a political and social aspect of 
the question which deserves attention here. The 
Allies deal with the established German Government, 
make bargains with them, and look to them for 
fulfilment. The Allies do not extract payment out of 
individual Germans direct ; they put pressure on the 
transitory abstraction called Government, and leave 
it to this to determine and to enforce which individuals 
are to pay, and how much. Since at the present time 
the German Budget is far from balancing even if 
there were no Reparation payments at all, it is fair 
to say that not even a beginning has yet been made 
towards settling the problem of how the burden is to 
be distributed between different classes and different 
interests. 

Yet this problem is fundamental. Payment takes 

But I am doubtful whether the Allies intend in fact to demand this. 
Hitherto the expense of the Armies has been so great as to absorb virtually 
the whole of the receipts (see Excursus V. below), having amounted by the 
middle of 1921 to about £200,000,000. In any case, it is now time that the 
agreement, signed at Paris in 1919 by Clemenceau, Lloyd George, and 
Wilson, should be brought into force, to the effect that the sum payable 
annually by Germany to cover the cost of occupation shall be limited to 
240 million gold marks as soon as the Allies " are convinced that the 
conditions of disarmament by Germany are being satisfactorily fulfilled." 
If we assume that this reduced figure is brought into force, as it ought to 
be, the total burden on Germany for Reparation and Occupation comes, 
on the assumption of the lower figure for exports, to 3 "8 milliard gold 
marks, that is, to 76 milliard paper marks. 



ni THE BURDEN OF THE LONDON SETTLEMENT 79 

on a different aspect when, instead of being expressed 
in terms of milliards and as a liability of the transitory 
abstraction, it is translated into a demand for a definite 
sum from a specific individual. This stage is not yet 
reached, and until it is reached the full intrinsic diffi- 
culty will not be felt. For at this stage the struggle 
ceases to be primarily one between the Allies and the 
German Government and becomes a struggle between 
different sections and classes of Germans. The struggle 
will be bitter and violent, for it will present itself to each 
of the contesting interests as an affair of life and death. 
The most powerful influences and motives of self- 
interest and self-preservation will be engaged. Con- 
flicting conceptions of the end and nature of Society 
will be ranged in conflict. A Government which makes 
a serious attempt to cover its liabilities will inevitably 
fall from power. 

(3) What relation do the demands bear to the third 
test of capacity, the present income of the German 
people ? A burden of 70 milliard paper marks (if we 
may, provisionally, adopt that figure as the basis 
of our calculations) amounts, since the population is 
now about 60 millions, to 1170 marks per head for 
every man, woman, and child. 

The great changes in money values have made it 
difficult, in all countries, to obtain estimates of the 
national income in terms of money under the new 
conditions. The Brussels Conference of 1920, on the 
basis of inquiries made in 1919 and at the beginning 



8o A REVISION OF THE TREATY chap. 

of 1920, estimated the German income per head at 
3900 paper marks. This figure may have been too 
low at the time, and, on account of the further 
depreciation of the mark, is certainly too low now. 
A writer in the Deutsche Allgemeine Zeitung (Feb. 14, 
1921), working on the statistics of statutory deductions 
from wages and on income-tax, arrived at a figure of 
2333 marks per head. This figure also is likely to 
be too low, partly because the statistics must mainly 
refer to earlier dates when the mark was less depreci- 
ated, and partly because all such statistics necessarily 
suffer from evasions. At the other extreme lies the 
estimate of Dr. Albert Lansburgh, who, by implication 
{Die Bank, March 1921), estimated the income per 
head at 6570 marks. 1 Another recent estimate is 
that of Dr. Arthur Heichen in the Pester Lloyd 
(June 5, 1921), who put the figure at 4450 marks. In 
a newspaper article published in various quarters in 
August 1921 I ventured to adopt the figure of 5000 
marks as the nearest estimate I could make. In 
fixing on this figure I was influenced by the above 
estimates, and also by statistics as to the general level 
of salaries and wages. Since then I have looked 
into the matter further and am still of the opinion that 
this figure was high enough for that date. 

1 " This estimate is based on an average wage of about 800 paper marks 
monthly for male, and about 400 paper marks monthly for female, 
employes." Converting these figures at the rate of 12 paper marks equal 
to 1 gold mark, he arrived at an aggregate national income between 30 
and 34 milliard gold marks. It is not easy to see how these wage estimates, 
even assuming their correctness, can lead to so high an aggregate figure. 



in THE BURDEN OF THE LONDON SETTLEMENT 81 

I am fortified in this conclusion by the result of 
inquiries which I addressed to Dr. Moritz Elsas of 
Frankfort- on-Main, on whose authority I quote the 
following figures. The best-known estimate of the 
German pre-war income is Helfierich's in his Deutsch- 
lands Volkswohlstand 1888-1913. In this volume he 
put the national income in 1913 at 40-41 milliard 
gold marks, plus 2| milliards for net income from 
nationalised concerns (railways, post office, etc.), that 
it is say, an aggregate of 43 milliards or 642 marks 
per head. Starting from the figure of 41 milliards 
(since the national services no longer produce a profit) 
and deducting 15 per cent for loss of territory, we 
have a figure of 34-85 milliards. What multiplier 
ought we to apply to this in order to arrive at the 
present income in terms of paper marks ? In 1920 
commercial employes obtained on the average in 
terms of marks 4j times their pre-war income, whilst 
at that time workmen had secured an increase in 
their nominal wages of 50 per cent more than this, 
that is to say, their wages were 6 to 8 times the pre-war 
figure. According to the Statistische Eeichsamt 
(Wirtschaft und StatistiJc, Heft 4, Jahrgang 1) com- 
mercial employes at the beginning of 1921 earned, 
males 6f times and females 10 times as much as in 
1913. 1 On the basis of the same proportion as in 
1920 we arrive at an increase of 10 times in the 
nominal wages of workmen. The wages index number 

1 There are twice as many male commercial employes as there are female. 

G 



82 A REVISION OF THE TREATY chap. 

of the Frankfurter Zeitung for August 1921 estimates 
the wages per hour at 11 times the pre-war level, but, 
as the number of working hours has fallen from 10 
to 8, these figures yield an increase of 8-8 times in 
the wage actually received. Since the wages of 
male commercial employes have increased less than 
this, since business profits in terms of paper marks 
only reach this figure of increase in exceptional cases, 
and since the income of the rentier, landlord, and 
professional classes has increased in a far lower 
proportion, an estimate of an 8-fold increase in the 
nominal income of the country as a whole at that date 
(August 1921) is likely to be an over-estimate rather 
than an under-estimate. This leads to an aggregate 
national income, on the basis of the Helfferich pre-war 
figures, of 278-80 milliard paper marks, and to an 
income of 4647 marks per head in August 1921. 

No allowance is made here for the loss by war of 
men in the prime of life, for the loss of external 
income previously earned from foreign investment 
and the mercantile marine, or for the increase of 
officials. Against these omissions there may be set 
off the decrease of the army and the increased number 
of women employes. 

The extreme instability of economic conditions 
makes it almost impossible to conduct a direct 
statistical inquiry into this problem at the present 
time. In such circumstances the general method of 
Dr. Elsas seems to me to be the best available. His 



ni THE BURDEN OF THE LONDON SETTLEMENT 83 

results show that the figure taken above is of the 
right general dimensions and is not likely to be 
widely erroneous. It enables us, too, to put an upper 
limit of reasonable possibility on our figures. No 
one, I think, would maintain that in August 1921 
nominal incomes in Germany averaged 10 times their 
pre-war level ; and 10 times Helfferich's pre-war 
estimate comes to 6420 marks. No statistics of 
national incomes are very precise, but an assertion 
that in the middle of 1921 the German income per 
head per annum lay between 4500 marks and 6500 
marks, and that it was probably much nearer the 
lower than the higher of these figures, say 5000 marks, 
is about as near the truth as we shall get. 

In view of the instability of the mark, it is, of 
course, the case that such estimates do not hold 
good for any length of time and need constant 
revision. Nevertheless this fact does not upset the 
following calculation as much as might be supposed, 
because it operates to a certain extent on both sides 
of the account. If the mark depreciates further, 
the average income per head in paper marks will 
tend to rise ; but in this event the equivalent in 
paper marks of the Reparation liability will, since it is 
expressed in terms of gold marks, rise also. A real 
alleviation can only result from a fall in the value of 
gold (i.e. a rise in world prices). 

To the taxation in respect of the Reparation charge 
there must be added the burden of Germany's own 



84 A REVISION OF THE TREATY chap. 

government, central and local. By the most extreme 
economies, short of repudiation of war loans and 
war pensions, this burden could hardly be brought 
below 1000 paper marks per head (at 20 paper 
marks = 1 gold mark), i.e. 60 milliards altogether, a 
figure greatly below the present expenditure. In the 
aggregate, therefore, 2170 marks out of the average 
income of 5000 marks, or 43 per cent, would go in 
taxation. If exports rise to 10 milliards (gold) and 
the average income to 6000 paper marks, the corre- 
sponding figures are 2500 marks and 42 per cent. 

There are circumstances in which a wealthy nation, 
impelled by overwhelming motives of self-interest, 
might support this burden. But the annual income 
of 5000 paper marks per head is equivalent in exchange 
value (at an exchange of 20 paper marks to 1 gold mark) 
to £12 J (gold), and after deduction of taxation to 
about £7 (gold), that is to say to less than 6d. a day, 
which in August 1921 was the equivalent in purchas- 
ing power in Germany of something between 9d. and Is. 
in England. 1 If Germany was given a respite, her 
income and with it her capacity would increase ; 
but under her present burdens, which render saving 
impossible, a degradation of standards is more likely. 
Would the whips and scorpions of any Government 
recorded in history have been efficient to extract 
nearly half their income from a people so situated ? 

1 For a full examination of the purchasing power of the paper mark 
inside Germany, see an article by M. Elsas in the Economic Journal, 
Sept. 1921. 



in THE WIESBADEN AGREEMENT 85 

For these reasons I conclude that whilst the 
Settlement of London granted a breathing space to 
the end of 1921, it can be no more permanent than 
its predecessors. 



EXCURSUS III 

THE WIESBADEN AGREEMENT 

In the summer of 1921 much interest was excited by 
reports of confidential interviews between M. Loucheur 
and Herr Rathenau, the Ministers of Reconstruction 
in France and Germany respectively. An agreement 
was provisionally reached in August 1921 and was 
finally signed at Wiesbaden on October 6, 1921 1 ; 
but it does not come into force until it has received 
the approval of the Reparation Commission. This 
Commission, whilst approving the general principles 
underlying it, have referred it to the principal 
Allied Governments, on the ground thafc it involves 
departures from the Treaty of Versailles beyond 
their own competence to authorise. The British 
delegate, Sir John Bradbury, has advised his Govern- 
ment that the Agreement should be approved subject 
to certain modifications which he sets forth ; and his 
Report has been published. 2 

1 A summary of this Agreement and other papers relating to it are given 
in the Appendix No. VIII. 

2 See Appendix No. VIII. 



86 A REVISION OF THE TREATY chap. 

The Wiesbaden Agreement is a complicated docu- 
ment. But the essence of it is easily explained. It 
falls into two distinct parts. First, it sets up a pro- 
cedure by which private French firms can acquire 
from private German firms materials required for 
reconstruction in France, without France having to 
make payment in cash. Secondly, it provides that, 
whilst Germany is not to receive payment at once for 
any part of these goods, only a proportion of the sum 
due is credited to her immediately in the books of the 
Reparation Commission, the balance being advanced 
by her to France for the time being and only brought 
into the Reparation account at a later date. 

The first set of provisions has met with unqualified 
approval from every one. An arrangement which 
may possibly stimulate payment of Reparation in the 
form of actual materials for the reconstruction of the 
devastated districts satisfies convenience, economics, 
and sentiment in a peculiarly direct way. But such 
supplies were already arranged for under the Treaty, 
and the chief value of the new procedure lies in its 
replacing the machinery of the Reparation Com- 
mission by direct negotiation between the French 
and German authorities. 1 

1 Incidentally the Wiesbaden Agreement sets up a fairer procedure for 
fixing the prices of supplies in kind than that contemplated in the Treaty. 
According to the Treaty the prices are fixed at the sole discretion of the 
Reparation Commission. In the Wiesbaden Agreement this duty is assigned 
to an Arbitral Commission consisting of a German representative, a French 
representative, and an impartial third, who are to fix the prices, broadly 
speaking, on the basis of price existing in France in each quarterly period 
subject to this price being not more than 5 per cent below the German price. 



in THE WIESBADEN AGREEMENT 87 

The second set of provisions is, however, of a 
different character, since it interferes with the 
existing agreements between the Allies themselves 
as to the order and proportions in which each is to 
share in the available receipts from Germany, and 
seeks to secure for France a larger share of the earlier 
payments than she would receive otherwise. A 
priority to France is, in my opinion, desirable ; but 
such priority should be accorded as part of a 
general re-settlement of Reparation, in which Great 
Britain should waive her claim entirely. Further, 
the Agreement involves an act of doubtful good faith 
on the part of Germany. She has been protesting 
with great vehemence (and, I believe, with perfect 
truth) that the Decisions of London exact from her 
more than she can perform. But in such circum- 
stances it is an act of impropriety for her to enter 
voluntarily into an agreement which must have the 
effect, if it is operative, of further increasing her 
liabilities even beyond those against which she 
protests as impossible. Herr Rathenau may justify 
his action by the arguments that this is a first step 
towards replacing the Decisions of London by more 
sensible arrangements, and also that, if he can placate 
Germany's largest and most urgent creditor in the 
shape of France, he has not much to fear from the 
others. M. Loucheur, on the other hand, may know 
as well as I do, though speaking otherwise, that the 
Decisions of London cannot be carried out, and that 



88 A REVISION OF THE TREATY chap. 

the time for a more realistic policy is at hand ; he 
may even regard his interviews with Herr Rathenau 
as a foretaste of more intimate relationships between 
business interests on the two sides of the Rhine. 
But these considerations, if we were to pursue them, 
would lead us to a different plane of argument. 

Sir John Bradbury in his Report l on the Agree- 
ment to the British Government has proposed certain 
modifications which would have the effect of preserving 
the advantages of the first set of provisions, but of 
nullifying the latter so far as they could operate to 
the detriment of France's Allies. 

I consider, however, that exaggerated importance 
has been attached to this topic, since the actual 
deliveries of goods made under the Wiesbaden or 
similar agreements are not likely to be worth such 
large sums of money as are spoken of. Deliveries 
of coal, dyestuffs, and ships, dealt with in the 
Annexes to Part VIII. of the Treaty, are specifically 
excluded from the operation of the Wiesbaden 
Agreement, which is expressly limited to deliveries 
of plant and material, and these France undertakes 
to apply solely to the reconstitution of the de- 
vastated regions. The quantities of goods, which 
French firms and individuals will be ready to order 
from Germany at the full market price, and which 
Germany can supply, for this limited purpose (so 
great a part of the cost of which is necessarily 

1 See Appendix No. VIII. 



I" THE WIESBADEN AGREEMENT 89 

due to labour employed on the spot and not to 
materials capable of being imported from Germany), 
are not likely to amount, during the next five years, 
to a sum of money which the other Allies need 
grudge France as a priority claim. 

My other reserve relates to the supposed im- 
portance of the Wiesbaden Agreement as a precedent 
for similar arrangements with the other Allies, and 
raises the general issue of the utility of arrangements 
for securing that Germany should pay in kind rather 
than in cash, for other purposes than those of the 
devastated areas. 

It is commonly believed that, if our demands on 
Germany are met by her delivering to us not cash 
but particular commodities selected by ourselves, we 
can thus avoid the competition of German products 
against our own in the markets of the world, which 
must result if we compel her to find foreign currency 
by selling goods abroad at whatever cut in price 
may be necessary to market them. 1 

Most suggestions in favour of our being paid in 
kind are too vague to be criticised. But they 
usually sutler from the confusion of supposing that 
there is some advantage in our being paid directly 
in kind even in the case of articles which Germany 
might be expected to export in any case. For 
example, the Annexes to the Treaty which deal with 
deliveries in kind chiefly relate to coal, dyestuffs, 

1 I return to the theoretical aspects of this question in Chapter VI. 



90 A REVISION OF THE TREATY chap. 

and ships. These certainly do not satisfy the 
criterion of not competing with our own products ; 
and I see very little advantage, but on the other 
hand some loss and inconvenience, in the Allies 
receiving these goods direct, instead of Germany 
selling them in the best market and paying over 
the proceeds. In the case of coal in particular, it 
would be much better if Germany sold her output 
for cash in the best export markets, whether to France 
and Belgium or to the neighbouring neutrals, and 
then paid the cash over to France and Belgium, than 
that coal should be delivered to the Allies for which 
the latter may have no immediate use, or by transport 
routes which are uneconomical, when neutrals need 
the coal and what the Allies really require is the 
equivalent cash. In some cases the Allies have re-sold 
the coal which Germany has delivered to them, — a 
procedure which, in the case of an article for which 
freight charges cover so large a proportion of the 
whole value, involves a preposterous waste. 

If we try to stipulate the precise commodities in 
which Germany is to pay us, we shall not secure from 
her so large a contribution, as if we fix a reasonable 
sum which is within her capacity, and then leave 
her to find the money as best she can. If, moreover, 
the sum fixed is reasonable, the annual payments 
will not be so large, in proportion to the total volume 
of international trade, that we need be nervous 
lest the payments upset the normal equilibrium of 



in THE WIESBADEN AGREEMENT 91 

our economic life in any greater degree than is bound to 
result in any case from the gradual economic recovery 
of so formidable a trade rival as pre-war Germany. 

Whilst I make these observations in the interests 
of scientific accuracy, I admit that projects, for 
insisting on payment in kind may be very useful 
politically as a means of escaping out of our present 
impasse. In practice the value of such deliveries 
would turn out to be immensely less than the cash 
we are now demanding ; but it may be easier to 
substitute deliveries of materials in place of cash, 
which will in practice result in a great abatement of 
our demands, than to abate the latter in so many 
words. Moreover, protests against leaving Germany 
free to pay us in cash by selling goods how and where 
she can, enlist on the side of revision all the latent 
Protectionist sentiment which still abounds. If 
Germany were to make a strenuous effort to pay us 
by exploiting the only method open to her, namely, 
by selling as many goods as possible at low prices all 
over the world, it would not be long before many 
minds would represent this effort as a plot to ruin 
us ; and persons of this way of thinking will be most 
easily won over, if we describe a reduction in our 
demands, as a prohibition to Germany against develop- 
ing a nefarious competitive trade. Such a way of 
expressing a desirable change of policy combines, with 
a basis of truth, sufficient false doctrine to enable 
The Times, for example, to recommend it in a leading 



92 A REVISION OF THE TREATY chap. 

article without feeling conscious of any intellectual 
inconsistency ; and it furnishes what so many people 
are now looking for, namely, a pretext for behaving 
sensibly, without having to suffer the indignity and 
inconvenience of thinking and speaking so too. 
Heaven forbid that I should discourage them ! It is 
only too rarely that a good cause can summon to its 
assistance arguments sufficiently mixed to ensure 
success. 



EXCURSUS IV 

THE MARK EXCHANGE 

The gold value of a country's inconvertible paper 
money may fall, either because the Government is 
spending more than it is raising by loans and taxes 
and is meeting the balance by issuing paper money, 
or because the country is under the obligation of 
paying increased sums to foreigners for the purchase 
of investments or in discharge of debts. Temporarily 
it may be affected by speculation, that is to say by 
anticipation, whether well or ill founded, that one or 
other of the above influences will operate shortly ; 
but the influence of speculation is generally much 
exaggerated, because of the immense effect which it 
may exercise momentarily. Both influences can only 
operate through the balance of debts, due for im- 
mediate payment, between the country in question 



in THE MARK EXCHANGE 93 

and the rest of the world : the liability to make 
payments to foreigners operating on this directly ; and 
the inflation of the currency operating on it indirectly, 
either because the additional paper money stimulates 
imports and retards exports, by increasing local 
purchasing power at the existing level of values or 
because the expectation that it will so act causes anti- 
cipatory speculation. The expansion of the currency 
can have no effect whatever on the exchanges 
until it reacts on imports and exports, or encourages 
speculation ; and as the latter cancels out, sooner or 
later, the effect of currency expansion on the exchanges 
can only last by reacting on imports and exports. 

These principles can be applied without difficulty 
to the exchange value of the mark since 1920. At 
first the various influences were not all operating in 
the same direction. Currency inflation tended to 
depreciate the mark ; so did foreign investment by 
Germans (the " flight from the mark ") ; but invest- 
ment by foreigners in German Bonds and German 
currency (an exact line between which and short- 
period speculation it is not easy to draw) operated 
sharply in the other direction. After the mark had 
fallen to such a level that more than 100 marks could 
be obtained for a £ sterling, numerous persons all over 
the world formed the opinion that there would be a 
reaction some day to the pre-war value, and that 
therefore a purchase of marks or mark Bonds would 
be a good investment. This investment proceeded 



94 A REVISION OF THE TREATY chap. 

on so vast a scale that it placed foreign currency at 
the disposal of Germany up to an aggregate value 
which has been estimated at from £200,000,000 to 
£250,000,000. These resources enabled Germany, 
partially at least, to replenish her food supplies and 
to restock her industries with raw materials, require- 
ments involving an excess of imports over exports 
which could not otherwise have been paid for. In 
addition it even enabled individual Germans to 
remove a part of their wealth from Germany for 
investment in other countries. 

Meanwhile currency inflation was proceeding. In 
the course of the year 1920 the note circulation of the 
Keichsbank approximately doubled, whilst on balance 
the exchange value of the mark had deteriorated only 
slightly as compared with the beginning of that year. 

Moreover, up to the end of 1920 and even during 
the first quarter of 1921 Germany had made no cash 
payments for Keparation and had even received cash 
(under the Spa Agreement) for a considerable part 
of her coal deliveries. 

After the middle of 1921, however, the various 
influences, which up to that time had partly balanced 
one another, began to work all in one direction, 
that is to say, adversely to the value of the mark. 
Currency inflation continued, and during 1921 the note 
circulation of the Reichsbank was nearly trebled, 
bringing it up to nearly six times what it had been 
two years earlier. Imports steadily exceeded exports 



in THE MARK EXCHANGE 95 

in value. Some foreign investors in marks began to 
take fright and, so far from increasing their holdings, 
sought to diminish them. And now at last the 
German Government was called on to make important 
cash payments on Reparation account. Sales of 
marks from Germany, instead of being absorbed by 
foreign investors, had now to be made in competition 
with sales from these same investors. Naturally the 
mark collapsed. It had to fall to a value at which 
new buyers would come forward or at which sellers 
would hold off. 1 

There is no mystery here, nothing but what is 
easily explained. The credence attached to stories 
of a " German plot " to depreciate the mark wilfully 
is further evidence of the overwhelming popular 
ignorance of the influences governing the exchanges, 
an ignorance already displayed, to the great pecuniary 
advantage of Germany, by the international craze to 
purchase mark notes. 

In its later stages the collapse has been mainly 
due to the necessity of paying money abroad in 
discharge of Reparation and in repaying foreign in- 
vestors in marks, with the result that the fall in 
the external value of the mark has outstript any 
figure which could be justified merely as a conse- 
quence of the present degree of currency inflation. 

1 Any one, who can fully persuade himself of the unalterable truth of 
the proposition that every day the sales of exchange must exactly equal 
the purchases, will have gone a long way towards understanding the 
secret of the exchanges. 



96 A REVISION OF THE TREATY chap. 

Germany would require a much larger note issue 
than at present, if German internal prices were to 
become adjusted to gold prices at an exchange 
of more than 1000 marks to the £ sterling. 1 If, 
therefore, the other influences were to be removed, 
if, that is to say, the Reparation demands were 
revised and foreign investors were to take heart 
again, a sharp recovery might occur. On the other 
hand, a serious attempt by Germany to meet the 
Reparation demands would cause the expenditure of 
her Government to exceed its income by so great an 
amount, that currency inflation and the internal 
price level would catch up in due course the external 
depreciation in the mark. 

In either event Germany is faced with an un- 
fortunate prospect. If the present exchange depreci- 
ation persists and the internal price level becomes 
adjusted to it, the resulting redistribution of wealth 
between different classes of the community will 
amount to a social catastrophe. If, on the other 
hand, there is a recovery in the exchange, the cessa- 
tion of the existing artificial stimulus to industry 

1 Since there are about as many German Government Treasury Bills, 
payable at short notice, held by the public and the banks, other than the 
Reichsbank, as there are Reichsbank notes, the note issue can be easily 
expanded as soon as the internal price level needs more legal tender currency 
to support it, even apart from new issues by the Government to meet the 
excess of their expenditure over their income. Do those, who would 
enforce on the German Government a cessation of "the printing press," 
intend that the outstanding Treasury Bills should be repudiated, if at their 
maturity the holders wish to be paid off in cash ? There is no such easy 
solution of the overwhelming problems of German Public Finance. 



ni THE MARK EXCHANGE 97 

and of the Stock Exchange boom based on the 
depreciating mark may lead to a financial cata- 
strophe. 1 Those responsible for the financial policy 
of Germany have a problem of incomparable difficulty 
in froi.t of them. Until the Reparation liability has 
been settled reasonably, it is scarcely worth the while 
of any one to trouble his head about a problem which 
is insoluble. When stabilisation has become a prac- 
ticable policy, the wisest course will probably be to 
stabilise at whatever level prices and trade seem most 
nearly adjusted to at that date. 

1 Furthermore, every improvement in the value of the mark increases the 
real burden of what Germany owes to foreign holders of marks and also the 
real burden of the Public Debt on the Exchequer. A rate of exchange exceed- 
ing 1000 marks to the £ has at least this advantage that it has reduced these 
two burdens to very moderate dimensions. 



H 



CHAPTER IV 



THE REPARATION BILL 



The Treaty of Versailles specified the classes of 
damage in respect of which Germany was to pay 
Reparation. It made no attempt to assess the 
amount of this damage. This duty was assigned to 
the Reparation Commission, who were instructed to 
notify their assessment to the German Government 
on or before May 1, 1921. 

An attempt was made during the Peace Conference 
to agree to a figure there and then for insertion in 
the Treaty. The American delegates in particular 
favoured this course. But an agreement could not 
be reached. There was no reasonable figure which 
was not seriously inadequate to popular expectations 
in France and the British Empire. 1 The highest 
figure to which the Americans would agree, namely, 
140 milliard gold marks, was, as we shall see below, 

1 A fairly adequate account of this controversy during the Peace 
Conference can be pieced together from the following passages : Baruch, 
Making of Reparation, and Economic Sections of the Treaty, pp. 45-55 ; 
Lamont, What Really Happened at Paris, pp. 262-265 ; Tardieu, The Truth 
about the Treaty, pp. 294-309. 

98 



ch. iv THE REPARATION BILL 99 

not much above the eventual assessment of the 
Keparation Commission ; the lowest figure to which 
France and Great Britain would agree, namely, 180 
milliard gold marks, was, as it has turned out, much 
above the amount to which they were entitled even 
under their own categories of claim. 1 

Between the date of the Treaty and the announce- 
ment of its decision by the Reparation Commission, 
there was much controversy as to what this amount 
should be. I propose to review some of the details 
of this problem, because, if men are in any way 
actuated by veracity in international affairs, a just 
opinion about it is still relevant to the Reparation 
problem. 

The main contentions of Tine Economic Consequences 
of the Peace were these : (1) that the claims against 
Germany which the Allies were contemplating were 
impossible of payment ; (2) that the economic solid- 
arity of Europe was so close that the attempt to 
enforce these claims might ruin every one ; (3) that 
the money cost of the damage done by the enemy in 
France and Belgium had been exaggerated ; (4) that 
the inclusion of pensions and allowances in our claims 
was a breach of faith ; and (5) that our legitimate 
claim against Germany was within her capacity 
to pay. 

I have made some supplementary observations 
about (1) and (2) in Chapters III. and VI. I deal 

1 For these figures see Tardieu, op. cit. p. 305. 



ioo A REVISION OF THE TREATY chap. 

with (3) here and in Chapter V. with (4). These latter 
are still important. For, whilst time is so dealing with 
(1) and (2) that very few people now dispute them, the 
amount of our legitimate claim against Germany has 
not been brought into so sharp a focus by the pressure 
of events. Yet if my contention about this can be 
substantiated, the world will find it easier to arrange 
a practical settlement. The claims of justice in this 
connection are generally thought to be opposed to 
those of possibility, so that even if the pressure of 
events drives us reluctantly to admit that the latter 
must prevail, the former will rest unsatisfied. If, 
on the other hand, restricting ourselves to the devas- 
tations in France and Belgium, we can demonstrate 
that it is within the capacity of Germany to make 
full reparation, a harmony of sentiment and action 
can be established. 

With this end in view it is necessary that I should 
take up again, in the light of the fuller information 
now available, the statements which I made in The 
Economic Consequences of the Peace (p. 110) to the 
effect that " the amount of the material damage done 
in the invaded districts has been the subject of 
enormous, if natural, exaggeration." These state- 
ments have involved me in a charge, with which 
Frenchmen as eminent as M. Clemenceau x and M. 

1 It is of these passages that M. Clemenceau wrote as follows in his 
preface to M. Tardieu's book : " Fort en theme d'economiste, M. Keynes 
(qui ne fut pas seul, dans la Conference, a professer cette opinion) combat, 
sans aucun management, ' l'abus des exigences des Allies ' (lisez : ' de la 



iv THE REPARATION BILL 101 

Poincare have associated themselves, that I was 
actuated not by the truth but by a supposed hostility 
to France in speaking thus of the allegations of M. 
Klotz and M. Loucheur and some other Frenchmen. 
But I still urge on France that her cause may be 
served by accuracy and the avoidance of overstate- 
ment ; that the damage she has suffered is more 
likely to be made good if the amount is possible than 
if it is impossible ; and that, the more moderate her 
claims are, the more likely she is to win the support 
of the world in securing priority for them. M. 
Brenier, in particular, has conducted a widespread 
propaganda with the object of creating prejudice 
against my statistics. Yet to add a large number of 
noughts at the end of an estimate is not really an 
indication of nobility of mind. Nor, in the long run, 
are those persons good advocates of France's cause 
who bring her name into contempt and her sincerity 
into doubt by using figures wildly. We shall never 
get to work with the restoration of Europe unless 
we can bring not only experts, but the public, to 
consider coolly what material damage France has 
suffered and what material resources of reparation 
Germany commands. The Times, in a leading article 

France ') et de ses negociateurs. . . . Ces reproches et tant d'autres d'une 
violence brutale, dont je n'aurais rien dit, si l'auteur, a tous risques, n'eut 
cru servir sa cause en les livrant a la publicite, font assez clairement voir 
jusqu'ou certains esprits s'etaient montes." (In the English edition, M. 
Tardieu has caused the words fort en theme <T economiste to be translated by 
the words " with some knowledge of economics but neither imagination nor 
character " — which seems rather a free rendering.) 



102 A REVISION OF THE TREATY chap. 

which accompanied some articles by M. Brenier 
(December 4, 1920), wrote with an air of noble 
contempt — " Mr. Keynes treats their losses as matter 
for statistics." But chaos and poverty will continue 
as long as we insist on treating statistics as an emo- 
tional barometer and as a convenient vehicle of 
sentiment. In the following examination of figures 
let us agree that we are employing them to measure 
facts and not as a literary expression of love or hate. 
Leaving on one side for the present the items of 
pensions and allowances and loans to Belgium, let 
us examine the data relating to the material damage 
in Northern France. The claims made by the French 
Government did not vary very much from the spring 
of 1919, when the Peace Conference was sitting, down 
to the spring of 1921, when the Reparation Com- 
mission was deciding its assessment, though the 
fluctuations in the value of the franc over that period 
cause some confusion. Early in 1919 M. Dubois, 
speaking on behalf of the Budget Commission of the 
Chamber, gave the figure of 65 milliard francs " as 
a minimum," and on February 17, 1919, M. Loucheur, 
speaking before the Senate as Minister of Industrial 
Reconstruction, estimated the cost at 75 milliards at 
the prices then prevailing. On September 5, 1919, 
M. Klotz, addressing the Chamber as Minister of 
Finance, put the total French claims for damage to 
property (presumably inclusive of losses at sea, etc.) 
at 134 milliards. In July 1920 M. Dubois, by that 



iv THE REPARA TION BILL 103 

time President of the Keparation Commission, in a 
Report for the Brussels and Spa Conferences, put the 
figure at 62 milliards on the basis of pre-war prices. 1 
In January 1921 M. Doumer, speaking as Finance 
Minister, put the figure at 110 milliards. The actual 
claim which the French Government submitted to 
the Reparation Commission in April 1921 was for 
127 milliard paper francs at current prices. 2 By that 
time the exchange value of the franc, and also its 
purchasing power, had considerably depreciated, and, 
allowing for this, there is not so great a discrepancy 
as appears at first sight between the above estimates. 
For the assessment of the Reparation Commission 
it was necessary to convert this claim from paper 
francs into gold marks. The rate to be adopted for 
this purpose was the subject of acute controversy. 
On the basis of the actual rate of exchange prevailing 
at that date (April 1921) the gold mark was worth 
about 3-25 paper francs. The French representatives 
claimed that this depreciation was temporary and that 
a permanent settlement ought not to be based on it. 
They asked, therefore, for a rate of about frs. 1-50 
or frs. 1-75 to the gold mark. 3 The question was 

1 At about the same date, the German Indemnity Commission (Reichs- 
entschadigungskommission) estimated the cost at 7228 million gold marks, 
also on the basis of pre-war prices ; that is to say, at about one-seventh of 
M. Dubois' estimate. 

2 The details of this claim, so far as they have been published, are given 
in Appendix No. III. The above figure comprises the items for Industrial 
Damages, Damage to Houses, Furniture and Fittings, Unbuilt-on Land, 
State Property, and Public Works. 

3 See M. Loucheur's speech in the French Chamber, May 20, 1921. 



104 A REVISION OF THE TREATY chap. 

eventually submitted to the arbitration of Mr. Boyden, 
the American member of the Reparation Commis- 
sion, who, like most arbitrators, took a middle course 
and decided that 2-20 paper francs should be deemed 
equivalent to 1 gold mark. 1 He would probably 
have found it difficult to give a reason for this decision. 
As regards that part of the claim which was in respect 
of pensions, a forecast of the gold value of the franc, 
however impracticable, was relevant. But as regards 
that part which was in respect of material damage, 
no such adjustment was necessary ; 2 for the French 
claim had been drawn up on the basis of the current 
costs of reconstruction, the gold equivalent of which 
need not be expected to rise with an increase in the 
gold value of the franc, an improvement in the 
exchange being balanced sooner or later by a fall in 
franc prices. It might have been proper to make 
allowance for any premium existing at the date of the 
assessment, on the internal purchasing power of the 
franc over that of its external exchange-equivalent in 
gold. But in April 1921 the franc was not far from 
its proper " purchasing power parity," and I calculate 
that on this basis it would have been approximately 
accurate to have equated the gold mark with 3 paper 
francs. The rate of 2-20 had the effect, therefore, of 

1 For this rate to be justified the exchange value of the franc in New- 
York must rise to about 11 cents. 

2 M. Loucheur's statement to the French Chamber implied that this rate 
of conversion was applicable to material damage as well as to pensions, and I 
have assumed this in what follows ; but precise official information is lacking. 



IV 



THE REPARA TION BILL 



105 



inflating the French claim against Germany very 
materially. 

At this rate the claim of 127 milliard paper francs 
for material damage was equivalent to 57-7 milliard 
gold marks, of which the chief items were as follows : 





Francs (paper), 
millions. 


Marks (gold), 
millions. 


Industrial damages 
Damage to houses 
Furniture and fittings . 
Unbuilt-on land .... 
State property .... 
Public works .... 


38,882 
36,892 
25,119 
21,671 
1,958 
2,583 


17,673 
16,768 
11,417 

9,850 
890 

1,174 


Total 


127,105 


57,772 



This total, equivalent to £2886 million gold, is one 
which I believe to be a vast, indeed a fantastic, 
exaggeration beyond anything which it would be 
possible to justify under cross-examination. At the 
date when I wrote The Economic Consequences of the 
Peace, exact statistics as to the damage done were not 
available, and it was only possible to fix a maximum 
limit to a reasonable claim, having regard to the 
pre-war wealth of the invaded districts. Now, how- 
ever, much more detail is available with which to 
check the claim. 

The following particulars are quoted from a state- 
ment made by M. Briand in the French Senate on 
April 6, 1921, supplemented by an official memo- 



106 A REVISION OF THE TREATY chap. 

randum published a few days later, and represent the 
position at about that date 1 : 

(1) The population inhabiting the devastated dis- 
tricts in April 1921 was 4,100,000, as compared with 
4,700,000 in 1914. 

(2) Of the cultivable land 95 per cent of the surface 
had been relevelled and 90 per cent had been ploughed 
and was producing crops. 

(3) 293,733 houses were totally destroyed, in 
replacement of which 132,000 provisional dwellings 
of different kinds had been erected. 

(4) 296,502 houses were partially destroyed, of 
which 281,000 had been repaired. 

(5) Fifty per cent of the factories were again 
working. 

1 The figures of damage done, given by M. Briand, are generally speaking 
rather lower than those given ten months earlier (in June 1920) in a report by 
M. Tardieu in his capacity as President of the Comite des Regions Devastees. 
But the difference is not very material. For purposes of comparison, I give 
M. Tardieu's figures below together with those of the amount of reconstruction 
completed at that earlier date : 



Houses totally destroyed . 
Houses partially destroyed 
Railway lines 

Canals 

Roads 

Bridges, embankments, etc. 



Destroyed. Repaired. 

319,269 2,000 

313,675 182,000 

5,534 kilos. 4,042 kilos. 

1,596 „ 784 „ 

39,000 „ 7,548 „ 

4,785 „ 3,424 „ 



Destroyed, ^g^g 1001 Levelled. Ploughed. 

Arable land (hectares) 3,200,000 2,900,000 1,700,000 1,150,000 

Dpstrovpd Reconstructed Under 

jjestroyeu. and working. reconstruction. 

Factories and works 11,500 3,540 3,812 

A much earlier estimate is that made by M. Dubois for the Budget 
Commission of the French Chamber and published as Parliamentary Paper 
No. 5432 of the Session of 1918. 



THE REPARATION BILL 



107 



(6) Out of 2404 kilometres of railway destroyed, 
practically the whole had been reconstructed. 

It seems, therefore, that, apart from refurnishing 
and from the rebuilding of houses and factories, the 
greater part of which had still to be accomplished, the 
bulk of the devastation was already made good out 
of the daily labour of France within two years of the 
Peace Conference, before Germany had paid anything. 

This is a great achievement — one more demonstra- 
tion of the riches accruing to France from the patient 
industry of peasants, which makes her one of the rich 
countries of the world, in spite of the corrupt Parisian 
finance which for a generation past has wasted the 
savings of her investors. When we look at Northern 
France we see what honest Frenchmen can accom- 
plish. 1 But when we turn to the money claims 

1 A more recent estimate (namely, for July 1, 1921) has been given, 
presumably from official sources, by M. Fournier-Sarloveze, Deputy for 
the Oise. The following are some of his figures : 



At the Armistice 



By July 1921 : 



Inhabited Houses 

Totally destroyed . 
Badly injured . 
Partially injured . 
Entirely rebuilt 
Temporarily repaired 

Public Buildings 



289,147 
164,317 
258,419 
118,863 
182,694 



Destroyed 
Damaged . 
Restored . 
Temporarily 
patched up . 



Churches. 


Municipal 
Buildings. 


Schools. 


Post 
Offices. 


1,407 
2,079 
1,214 

1,097 


1,415 

2,154 

322 

931 


2,243 
3,153 

720 

2,093 


171 

271 

53 

196 



Hospitals. 



30 
197 

28 

128 



io8 



A REVISION OF THE TREATY 



which are based on this, we are back in the atmo- 
sphere of Parisian finance, — so grasping, faithless, 
and extravagantly unveracious as to defeat in the 
end its own objects. 

For let us compare some of these items of devasta- 
tion with the claims lodged. 

(1) 293,733 houses were totally destroyed and 
296,502 were partially destroyed. Since nearly all 
the latter have been repaired, we shall not be under- 
estimating the damage in assuming, for the purposes 
of a rough comparison, that, on the average, the 
damaged houses were half destroyed, which gives us 
altogether the equivalent of 442,000 houses totally 
destroyed. Turning back, we find that the French 
Government's claim for damage to houses was 16,768 
million gold marks, that is to say, £l, 006,000,000.! 
Dividing this sum by the number of houses, we find 
an average claim of £2275 per house ! 2 This is a 



At the Armistice 
By July 1921 : 



Cultivated Land 

Totally destroyed . 
Levelled . . . , 
Ploughed . . . , 

Live Stock 



Acres. 
4,693,516 
4,067,408 
3,528,950 





1914. 


Nov. 1918. 


July 1921. 


Cattle 

Horses, donkeys, and mules . 

Sheep and goats 

Pigs 


890,084 
412,730 
958,308 
357,003 


57,500 
32,600 
69,100 
25,000 


478,000 
235,400 
276,700 
169,000 



1 Assuming an exchange of £1 = $4. 

1 Even if we assumed that every house which had been injured at all 
was totally destroyed, the figure would work out at about £1700. 



iv THE REPARATION BILL 109 

claim for what were chiefly peasants' and miners' 
cottages and the tenements of small country towns. 
M. Tardieu has quoted M. Loucheur as saying that the 
houses in the Lens-Courrieres district were worth 
5000 francs (£200) a-piece before the war, but would 
cost 15,000 francs to rebuild after the war, which 
sounds not at all unreasonable. In April 1921 the 
cost of building construction in Paris (which had been 
a good deal higher some months before) was estimated 
to be, in terms of paper francs, three and a half times 
the pre-war figure. 1 But even if we take the cost in 
francs at five times the pre-war figure, namely 25,000 
paper francs per house, the claim lodged by the French 
Government is still three and a half times the 
truth. I fancy that the discrepancy, here and 
also under other heads, may be partly explained by 
the inclusion in the official French claim of indirect 
damages, namely, for loss of rent — perte de loyer. 
It does not appear what attitude the Reparation 

1 M. Brenier, who has spent much time criticising me, quotes with 
approval (The Times, January 24, 1921) a French architect as estimating the 
cost of reconstruction at an average of £500 per house, and quotes also, 
without dissent, a German estimate that the pre-war average was £240. He 
also states, in the same article, that the number of houses destroyed was 
304,191 and the number damaged 290,425, or 594,616 in all. Having 
pointed out the importance of not overlooking sentiment in these questions, 
he then multiplies £500, not by the number of houses but by the number 
of the population, and arrives at an answer of £750,000,000. What is one 
to reply to sentimental multiplication ? What is the courteous retort to 
controversy on these lines ? (His other figures are clearly such a mass of 
misprints, muddled arithmetic, confusion between hectares and acres and 
the like, that, whilst an attack could easily make a devastated area of them, 
it would be unfair to base any serious criticism on this well-intentioned 
farrago. As a writer on these topics, M. Brenier is about of the calibre of 
M. Raphael-Georges Levy.) 



no A REVISION OF THE TREATY chap. 

Commission took up towards indirect pecuniary and 
business losses arising in the devastated districts out 
of the war. But I do not think that such claims 
are admissible under the Treaty. Such losses, real 
though they were, were not essentially different from 
analogous losses occurring in other areas, and indeed 
throughout the territory of the Allies. The maximum 
claim, however, on this head would not go far towards 
justifying the above figure, and we can allow a 
considerable margin of error for such additional 
items without impairing the conclusion that the claim 
is exaggerated. In The Economic Consequences of 
the Peace (p. 117) I estimated that £250,000,000 
(gold) might be a fair estimate for damage to house 
property ; and I still think that this was about 
right. 

(2) This claim for damage to houses is exclusive 
of furniture and fittings, which are the subject of a 
separate claim, namely, for 11,417 million gold marks, 
or nearly £700,000,000 sterling. To check this figure 
let us assume that the whole of the furniture and 
fittings were destroyed, not only where the houses 
were destroyed, but also in every case where a house 
was damaged. This is an overstatement, but we may 
set it off against the fact that in a good many cases 
the furniture may have been looted and not recovered 
by restitution (a large amount has, in fact, been 
recovered in this way), although the structure of the 
house was not damaged at all. The total number of 



iv THE REPARATION BILL in 

houses damaged or destroyed was 590,000. Dividing 
this into £700,000,000 sterling, we have an average 
of £1180 per house — an average valuation of the 
furniture and fittings in each peasant's or collier's 
house of more than £1000 ! I hesitate to guess how 
great an overstatement shows itself here. 

(3) The largest claim of all, however, is for " in- 
dustrial damages," namely, 17,673 million gold marks, 
or about £1,060,000,000 sterling. In 1919 M. Lou- 
cheur estimated the cost of reconstruction of the coal 
mines at 2000 million francs, that is £80,000,000 at 
the par of exchange. 1 As the pre-war value of all 
the coal mines in Great Britain was estimated at 
only £130,000,000, and as the pre-war output of the 
British mines was fifteen times that of the invaded 
districts of France, this figure seems high. 2 But even 
if we accept it, there is still nearly a thousand millions 
sterling to account for. The great textile industries 
of Lille and Roubaix were robbed of their raw material, 
but their plant was not seriously injured, as is 
shown by the fact that in 1920 the woollen industry 
of these districts was already employing 93-8 per 
cent and the cotton industry 78-8 per cent of their 
pre-war personnel. At Tourcoing 55 factories out 

1 M. Tardieu states that, on account of the subsequent rise in prices, 
M. Loucheur's estimate has proved, in terms of paper francs, to be inadequate. 
But this is allowed for by my having converted paper francs into sterling 
at the par of exchange. 

2 The Lens coal mines, which were the object of most complete de- 
struction, comprised 29 pits, and had, in 1913, 16,000 workmen with an 
output of 4 million tons. 



H2 A REVISION OF THE TREATY chap. 

of 57 were in operation, and at Roubaix 46 out 
of 48. 1 

Altogether 11,500 industrial establishments are 
said to have been interfered with, but this includes 
every village workshop, and about three-quarters of 
them employed less than 20 persons. Half of them 
were at work again by the spring of 1921. What is 
the average claim made on their behalf ? Deducting 
the coal mines as above and dividing the total claim 
by 11,500, we reach an average figure of £8500. The 
exaggeration seems prima facie on as high a scale as 
in the case of houses and furniture. 

(4) The remaining item of importance is for 
unbuilt-on land. The claim under this head is for 
9850 million gold marks, or about £590,000,000 
sterling. M. Tardieu (op. cit. p. 347) quotes Mr. Lloyd 
George as follows, in the course of a discussion during 
the Peace Conference in which he was pointing out 
the excessive character of the French claims : "If 
you had to spend the money which you ask for the 
reconstruction of the devastated regions of the North 
of France, I assert that you could not manage to 
spend it. Besides, the land is still there. Although 
it has been badly upheaved in parts, it has not dis- 
appeared. Even if you put the Chemin des Dames 
up to auction, you would find buyers." Mr. Lloyd 
George's view has been justified by events. In April 

1 I take these figures from M. Tardieu, who argues, most illuminatingly, 
in alternate chapters, according to his thesis for the time being, that 
reconstruction has hardly begun, and that it is nearly finished. 



iv THE REPARATION BILL 113 

1921 the French Prime Minister was able to tell his 
Senate that 95 per cent of the cultivable land had been 
re-levelled and that 90 per cent had been ploughed 
and was producing crops. Some go so far as to main- 
tain that the fertility of the soil has been actually 
improved by the disturbance of its surface and by its 
lying fallow for several years. But apart from its 
having proved easier than was anticipated to make 
good this category of damage, the total cultivated 
area (excluding woodland) of the whole of the eleven 
Departments affected was about 6,650,000 acres, of 
which 270,000 acres were in the " zone of destruc- 
tion," 2,000,000 acres in the " zone of trenches and 
bombardment," and 4,200,000 acres in the " zone of 
simple occupation." The claim, therefore, averaged 
over the whole area, works out at about £90 per acre, 
and averaged over the first two categories above, at 
about £260 per acre. This claim, though it is de- 
scribed as being in respect of unbuilt-on land, probably 
includes farm buildings (other than houses), imple- 
ments, live stock, and the growing crops of August 
1914. As experience has proved that the permanent 
qualities of the land have only been seriously impaired 
over a small area, these latter items should probably 
constitute the major part of the claim. We have also 
to allow for destruction of woodlands. But even 
with high estimates for each of these items, I do 
not see how we could reach a total above a third of 

the amount actually claimed. 

i 



ii4 A REVISION OF THE TREATY chap. 

These arguments are not exact, but they are suffi- 
ciently so to demonstrate that the claim sent in to 
the Reparation Commission is untenable. I believe 
that it is at least four times the truth. But it is 
possible that I have overlooked some items of claim, 
and it is better in discussions of this kind to leave a 
wide margin for possible error. I assert, therefore, 
that on the average the claim is not less than two or 
three times the truth. 

I have spent much time over the French claim, 
because it is the largest, and because more particulars 
are available about it than about the claims of the 
other Allies. On the face of it, the Belgian claim is 
open to the same criticism as the French. But in 
this claim a larger part is played by levies on 
the civilian population and personal injuries to 
civilians. The material damage, however, was on 
a very much smaller scale than in France. Belgian 
industry is already working at its pre-war efficiency, 
and the amount of reconstruction still to be made 
good is not on a great scale. The Belgian Minister 
for Home Affairs stated in Parliament in February 
1920 that at the date of the Armistice 80,000 houses 
and 1100 public buildings had been destroyed. This 
suggests that the Belgian claim on this head ought to 
be about a quarter of the French claim ; but in view 
of the greater wealth of the invaded districts of 
France, the Belgian loss is probably decidedly less than 
a quarter of the French loss. The claim, actually sub- 



iv THE REPARATION BILL 115 

mitted by Belgium, for property, shipping, civilians 
and prisoners (that is to say, the aggregate claim apart 
from pensions and allowances), amounted to 34,254 
million Belgian francs. Inasmuch as the Belgian 
Ministry of Finance, in an official survey published in 
1913, estimate the entire wealth of the country at 
29,525 million Belgian francs, it is evident that, even 
allowing for the diminished value of the Belgian 
franc, which is our measuring rod, this claim is very 
grossly excessive. I should guess that the degree 
of exaggeration is quite as great as in the case of 
France. 

The British Empire claim is, apart from pensions 
and allowances, almost entirely in respect of shipping 
losses. The tonnage lost and damaged is definitely 
known. The value of the cargoes carried is a matter 
of difficult guesswork. On the basis of an average of 
£30 for the hull and £40 for the cargo per gross ton 
lost, I estimated the claim in The Economic Conse- 
quences of the Peace (p. 121) at £540,000,000. The 
actual claim lodged was for £767,000,000. Much de- 
pends on the date at which the cost of replacement 
is calculated. Most of the tonnage was in fact re- 
placed out of vessels the building of which commenced 
before the end of the war or shortly afterwards, and 
thus cost a much higher price than prevailed in, e.g., 
1921. But even so the claim lodged is very high. 
It seems to be based on an estimate of £100 per gross 
ton lost for hull and cargo together, any excess in 



u6 A REVISION OF THE TREATY chap. 

this being set off against the fact that no separate 
allowance is made for vessels damaged or molested, 
but not sunk. This figure is the highest for which 
any sort of plausible argument could be adduced, 
rather than a judicial estimate. I adhere to the 
estimate which I gave in The Economic Consequences 
of the Peace. 

I forbear to examine the claims of the other Allies. 
The details, so far as they have been published, are 
given in Appendix No. III. 

The observations made above relate to the claims 
for material damage and do not bear on those for 
pensions and allowances, which are, nevertheless, a 
very large item. These latter are to be calculated, 
according to the Treaty, in the case of pensions " as 
being the capitalised cost at the date of coming into 
force of the Treaty, on the basis of the scales in 
force in France at such date," and in the case of 
allowances made during hostilities to the dependents 
of mobilised persons " on the basis of the average 
scale for such payments in force in France " during 
each year. That is to say, the French Army scale 
is to be applied all round ; and the result, given 
the numbers affected, should be a calculable figure, 
in which there should be little room for serious 
error. The actual claims were as follows in milliard 
gold marks x : 

1 Francs are here converted at 2 - 20 to the gold mark and the £ sterling 
at 1:20. 



THE REPARATION BILL 



117 





Milliard marks 




(gold). 


France .... 


. 33 


British Empire 


. 37 


Italy .... 


. 17 


Belgium 


. 1 


Japan .... 


. 1 


Roumania 


. 4 



93 

This does not include Serbia, for which a separate 
figure is not available, or the United States. The 
total would work out, therefore, at about 100 milliard 
gold marks. 1 

What does the aggregate of the claims work out 
at under all heads, and what relation does this total 
bear to the final assessment of the Reparation Com- 
mission ? As the claims are stated in a variety of 
national currencies, it is not quite a simple matter to 
reach a total. In the following table French francs 
are converted into gold marks at 2-20 (the rate 
adopted by the Commission as explained above), ster- 
ling approximately at par (on the analogy of the rate 
for francs), Belgian francs at the same rate as French 
francs, Italian lire at twice this rate, Serbian dinars 
at four times this rate, and Japanese yen at par. 

1 This is exactly the figure of the estimate which I gave in The Economic 
Consequences of the Peace (p. 148). But I there added : " I feel much more 
confidence in the approximate accuracy of the total figure than its division 
between the different claimants." This proviso was necessary, as I had 
over-estimated the claims of France and under -estimated those of the 
British Empire and of Italy. 



u8 



A REVISION OF THE TREATY 



France 

British Empire 
Italy . 
Belgium 
Japan 
Jugo-Slavia 
Roumania . 
Greece 



Milliard marks 
(gold). 

99 

54 

27 

161 

1* 

n 

14 

2 



223| 

There are omitted from this table Poland and 
Czecho-Slovakia, of which the claims are probably 
inadmissible, the United States, which submitted 
no claim, and certain minor claimants shown in 
Appendix No. III. 

In round figures, therefore, we may put the claims 
as lodged before the Reparation Commission at 
about 225 milliard gold marks, of which 95 milliards 
was in respect of pensions and allowances, and 130 
milliards for claims under other heads. 

The Reparation Commission, in announcing its 
decision, did not particularise as between different 
claimants or as between different heads of claim, 
and merely stated a lump sum figure. Their figure 
was 132 milliards ; that is to say, about 58 per cent of 
the sums claimed. This decision was in no way 
concerned with Germany's capacity to pay, and was 
simply an assessment, intended to be judicial, as 



iv THE REPARATION BILL 119 

to the sum justly due under the heads of claim 
established by the Treaty of Versailles. 

The decision was unanimous, but only in face of 
sharp differences of opinion. It is not suitable or 
in accordance with decency to set up a body of 
interested representatives to give a judicial decision 
in their own case. This arrangement was an offspring 
of the assumption which runs through the Treaty 
that the Allies are incapable of doing wrong, or even 
of partiality. 

Nothing has been published in England about the 
discussions which led up to this conclusion. But 
M. Poincare, at one time President of the Eeparation 
Commission and presumably well-informed about its 
affairs, has lifted a corner of the veil in an article 
published in the Revue des Deux Mondes for May 15, 
1921. He there divulges the fact that the final result 
was a compromise between the French and the British 
representatives, the latter of whom endeavoured to 
fix the figure at 104 milliards, and defended this 
adjudication with skilful and even passionate 
advocacy. 1 

When the decision of the Reparation Commis- 
sion was first announced, and was found to abate 
so largely the claims lodged with it, I hailed it, led 

1 " Elle avait ete le resultat d'un compromis assez penible entre le 
delegue francais, l'honorable M. Dubois, et le representant anglais, Sir 
John Bradbury, depuis lors demissionnaire, qui voulait s'en tenir au 
chifire de cent quatre milliards et qui avait defendu la these du gouverne- 
ment britannique avec une habilete passionnee." 



120 A REVISION OF THE TREATY chap. 

away a little perhaps by its very close agreement with 
my own predictions, as a great triumph for justice 
in international affairs. So, in a measure, I still 
think it. The Reparation Commission went a con- 
siderable way in disavowing the veracity of the 
claims of the Allied Governments. Indeed, their 
reduction of the claims for items other than pensions 
and allowances must have been very great, since 
the claims for pensions, being capable of more or less 
exact calculation, 1 can hardly have been subject 
to an initial error of anything approaching 42 per 
cent. If, for example, they reduced the claim for 
pensions and allowances from 95 to 80 milliards, 
they must have reduced the other claims from 130 
milliards to 52 milliards, that is to say, by 60 per 
cent. Yet even so, on the data now available, I do 
not believe that their adjudication could be main- 
tained before an impartial tribunal. The figure of 
104 milliards, attributed by M. Poincare to Sir John 
Bradbury, is probably the nearest we shall get to a 
strictly impartial assessment. 

To complete our summary of the facts two 
particulars must be added. (1) The total, as assessed 
by the Reparation Commission, comprehends the 
total claim against Germany and her Allies. It 
includes, that is to say, the damage done by the 
armies of Austria-Hungary, Turkey, and Bulgaria, 

1 The chief question of legitimate controversy in this connection was 
that of the rate of exchange for converting paper francs into gold marks. 



iv THE REPARATION BILL 121 

as well as by those of Germany. Payments, if any, 
made by Germany's Allies must, presumably, be 
deducted from the sum due. But Annex I. of the 
Reparation Chapter of the Treaty of Versailles is so 
drafted as to render Germany liable for the whole 
amount. (2) This total is exclusive of the sum due 
under the Treaty for the reimbursement of sums 
lent to Belgium by her Allies during the war. At 
the date of the London Agreement (May 1921) 
Germany's liability under this head was provisionally 
estimated at 3 milliard gold marks. But it had not 
then been decided at what rate these loans, which were 
made in terms of dollars, sterling, and francs, should 
be converted into gold marks. The question was 
referred for arbitration to Mr. Boyden, the United 
States Delegate on the Reparation Commission, 
and at the end of September 1921 he announced his 
decision to the effect that the rate of conversion should 
be based on the rate of exchange prevailing at the 
date of the Armistice. Including interest at 5 per 
cent, as provided by the Treaty, I estimate that this 
liability amounts at the end of 1921 to about 6 
milliard gold marks, of which slightly more than 
a third is due to Great Britain and slightly less 
than a third each to France and the United States 
respectively. 

I take, therefore, as my final conclusion that the 
best available estimate of the sum due from Germany, 
under the strict letter of the Treaty of Versailles, is 



122 A REVISION OF THE TREATY chap. 

110 milliard gold marks, which maybe divided between 
the main categories of claim in the proportions — 74 
milliards for pensions and allowances, 30 milliards for 
direct damage to the property and persons of civilians, 
and 6 milliards for war debt incurred by Belgium. 

This total is more than Germany can pay. But 
the claim exclusive of pensions and allowances may 
be within her capacity. The inclusion of a demand 
for pensions and allowances was the subject of a 
long struggle and a bitter controversy in Paris. I 
have argued that those were right who maintained 
that this demand was inconsistent with the terms 
on which Germany surrendered at the Armistice. 
I return to this subject in the next chapter. 



EXCURSUS V 

RECEIPTS AND EXPENSES PRIOR TO MAY 1, 1921 

The provision in the Treaty of Versailles that 
Germany, subject to certain deductions, was to pay 
£1000 millions (gold) before May 1, 1921, was so remark- 
ably wide of facts and possibilities, that for some time 
past no one has said much about this offspring of 
the unimaginative imaginations of Paris. As it was 
totally abandoned by the London Agreement of 
May 5, 1921, there is no need to return to what is an 
obsolete controversy. But it is interesting to record 



PA YMENTS PRIOR TO MA Y 1921 



123 



what payments Germany did actually effect during 
the transitional period. 

The following details are from a statement pub- 
lished by the British Treasury in August 1921 : 

Appeoximate Statement by the Reparation Commission 
of Deliveries made by Germany from November 11, 
1918 to April 30, 1921 

Gold Marks. 

Receipts in cash .... 99,334,000 

Deliveries in kind : 

Ships 270,331,000 

Coal 437,160,000 

Dyestufls 36,823,000 

Other deliveries .... 937,040,000 



1,780,688,000 
Immovable property and assets not 
yet encashed .... 2,754,104,000 



4,534,792,000 
say £284,500,000 

The immovable property consists chiefly of the 
Saar coalfields surrendered to France, State property 
in Schleswig surrendered to Denmark, and State 
property (with certain exceptions) in the territory 
transferred to Poland. 

The whole of the cash, two-thirds of the ships, and 
a quarter of the dyestuffs accrued to Great Britain. 
A share of the ships and dyestufls, the Saar coalfields, 
the bulk of the coal and of the " other deliveries," 



124 



A REVISION OF THE TREATY 



including valuable materials left behind by the 
German Army, accrued to France. Some ships, a 
proportion of the coal and other deliveries, and the 
compensation, payable by Denmark in respect of 
Schleswig, fell to Belgium. Italy obtained a portion 
of the coal and ships and some other trifles. The 
value of German State property in Poland could not 
be transferred to any one but Poland. 

But the sums thus received were not available for 
Reparation. There had to be deducted from them 
(1) the sums returned to Germany under the Spa 
Agreement, namely 360,000,000 gold marks, 1 and (2) 
the costs of the Armies of Occupation. 

In September 1921 the Reparation Commission 
published an approximate estimate, as follows, of the 
cost of occupation of German territory by the Allied 
Armies from the Armistice until May 1, 1921 : 



United States 
Great Britain 
France 
Belgium 
Italy 



Total cost. 



$278,067,610 

£52,881,298 

Frs. 2,304,850,470 

Frs. 378,731,390 

Frs. 15,207,717 



Cost per man 
per day. 



$4-50 

14s. 

Frs. 15-25 

Frs. 1650 

Frs. 22 



The conversion of these sums into gold marks raises 
the usual controversy as to the rates at which con- 

1 Made up of about £5,500,000 advanced by Great Britain, 772,000,000 
francs by France, 96,000,000 francs by Belgium, 147,000,000 lire by Italy, 
and 56,000,000 francs by Luxembourg. 



iv PAYMENTS PRIOR TO MAY IQ2I 125 

version is to be effected. The total was estimated, 
however, at three milliard gold marks, 1 of which one 
milliard was owed to the United States, one milliard 
to France, 900 millions to Great Britain, 175 millions 
to Belgium, and 5 millions to Italy. On May 1, 1921, 
France had about 70,000 soldiers on the Rhine, Great 
Britain about 18,000, and the United States a trifling 
number. 

The net result of the transitional period was, there- 
fore, as follows : 

(1) Putting on one side State property transferred 
to Poland, the whole of the transferable wealth 
obtained from Germany in the two and a half years 
following the Armistice under all the rigours of the 
Treaty, designed as they were to extract every avail- 
able liquid asset, just about covered the costs of 
collection, that is to say, the expenses of the Armies 
of Occupation, and left nothing over for Reparation. 

(2) But as the United States has not yet been 
paid the milliard owing to her for her Army, the other 
Allies have received between them on balance a 
surplus of about one milliard. This surplus was not 
divided amongst them equally. Great Britain had 
received 450-500 million gold marks less than her 

1 The German authorities have published a somewhat higher figure. 
According to a memorandum submitted to the Reichstag in September 1921 
by their Finance Minister, the costs of the Armies of Occupation and the 
Rhine Provinces Commission up to the end of March 1921 were mks. 
3,936,954,542 (gold), in respect of expenditure met in the first instance by 
the occupying Powers, and subsequently recoverable from Germany, plus 
mks. 7,313,911,829 (paper), in respect of expenditure directly met by the 
German authorities. 



126 A REVISION OF THE TREATY chap. 

expenses, Belgium 300-350 million more than her 
expenses, and France 1000-1200 millions more than 
her expenses. 1 

Under the strict letter of the Treaty those Allies 
who had received less than their share might have 
claimed to be paid the difference in cash by those 
who had received more. This situation and the 
allocation of the milliard paid by Germany between 
May and August 1921 were the subject of the 
Financial Agreement provisionally signed at Paris 
on August 13, 1921. This Agreement chiefly con- 
sisted of concessions to France, partly by Belgium, 
who agreed in effect to a partial postponement of 
her priority charge on two milliards out of the 
first sums received from Germany for Repara- 
tion, and partly by Great Britain, who accepted 
for the purposes of internal accounting amongst the 
Allies themselves a lower value for the coal delivered 
by Germany than the value fixed by the Treaty. 2 
In view of these concessions about future payment, 
the first milliard in cash, received after May 1, 
1921, was divided between Great Britain and Bel- 
gium, the former receiving 450 million gold marks 
in discharge of the balance still due to her in 
respect of the costs of occupation, and the balance 
falling to the latter as a further instalment of her 

1 I do not vouch for the accuracy of these figures, which are rough 
estimates of my own on the basis of incomplete published information. 

2 On the other hand, Great Britain's view was adopted as to the valua- 
tion of shipping. 



iv PA YMENTS PRIOR TO MA Y 1921 127 

agreed priority charge. This Agreement was repre- 
sented in the French press as laying new burdens 
upon France, or at least as withdrawing existing rights 
from her. But this was not the case. The Agree- 
ment was directed throughout to moderating the 
harshness with which the letter of the Treaty and 
the arrangements of Spa would have operated 
against France. 1 

The actual value of these deliveries is a striking 
example of how far the value of deliverable articles 
falls below the estimates which used to be current. 
The Reparation Commission have stated that the 
credit which Germany will receive in respect of her 
Mercantile Marine will amount to about 755 million 
gold marks. This figure is low, partly because many 
of the ships were disposed of after the slump in ton- 
nage. 2 Nevertheless, this was one of the tangible 
assets of great value, which it was customary at one 
time to invoke in answer to those who disputed 

1 In view of the political difficulties in which this Agreement involved 
M. Briand's Cabinet, the matter was apparently adjusted by Great Britain 
and Belgium receiving their quotas as above, " subject to adjustment of the 
final settlement " of the questions dealt with in the Agreement. The net 
result on September 30, 1921, was that, including the above sum, Great 
Britain had been repaid £5,445,000 in respect of the Spa coal advances, 
and had also received, or was in course of collecting, about £43,000,000 
towards the expenses of the Army of Occupation (approximately 
£50,000,000). Thus, as the result of three years' Reparations, Great Britain's 
costs of collection had been about £7,000,000 more than her receipts. 

2 To value these ships at what they fetched during the slump, yet to 
value Germany's liability for submarine destruction at what the ships cost 
to replace during the boom, appears to be unjust. My estimate (in The 
Economic Consequences of the Peace, p. 161) of the value of the ships to be 
delivered was £120,000,000. 



128 A REVISION OF THE TREATY chap. 

Germany's capacity to make vast payments. What 
does it amount to in relation to the bill against her % 
The bill is 138 milliard gold marks, on which interest 
at 6 per cent for one year is 8280 million gold marks. 
That is to say, Germany's Mercantile Marine in its 
entirety, of which the surrender humbled so much 
pride and engulfed so vast an effort, would about meet 
a month's charges. 



EXCURSUS VI 

THE DIVISION OF RECEIPTS AMONGST THE ALLIES 

The Allied Governments took advantage of the 
Spa meeting (July 1920) to settle amongst themselves 
a Reparation question which had given much trouble 
in Paris and had been left unsolved, 1 — namely, the 
proportions in which the Reparation receipts are to 
be divided between the various Allied claimants. 2 
The Treaty provides that the receipts from Germany 
will be divided by the Allies " in proportions which 
have been determined upon by them in advance, on 
a basis of general equity and of the rights of each." 
The failure, described by M. Tardieu, to reach an 
agreement in Paris, rendered the tense of this pro- 

1 M. Tardieu (The Truth about the Treaty, pp. 346-348) has given an 
account of the abortive discussion of this question at the Peace Conference. 
The French obtained at Spa a ratio very slightly more favourable to them- 
selves than that which they had claimed and Mr. Lloyd George had rejected 
at Paris. 

* For a summary of the text of this Agreement see Appendix No. I. 



iv THE DIVISION OF THE RECEIPTS 129 

vision inaccurate, but at Spa it was settled as 
follows : 



France 

British Empire x . 

Italy . 

Belgium 

Japan and Portugal 



52 per cent. 

22 

10 

8 „ 
^ of 1 per cent each ; 



trie remaining 6j per cent being reserved for the 
Serbo-Croat-Slovene State and for Greece, Rumania, 
and other Powers not signatories of the Spa Agree- 
ment. 2 

This settlement represented some concession on 
the part of Great Britain, whose proportionate claim 
was greatly increased by the inclusion of pensions 
beyond what it would have been on the basis of 
Reparation proper ; and the proportion claimed by 
Mr. Lloyd George in Paris was probably nearer the 
truth (namely, that the French and British shares 
should be in the proportion 5 to 3). I estimate that 
France 45 per cent, British Empire 33 per cent, Italy 
10 per cent, Belgium 6 per cent, and the rest 6 per 

1 At the conference of Dominion Prime Ministers in July 1921 this 
share was further divided as follows between the constituent portions of 
the Empire : 



United Kingdom 


. 86-85 


New Zealand . 


1-75 


Minor colonies 


•80 


South Africa . 


•60 


Canada . 


435 


Newfoundland 


•10 


Australia 


435 


India 


1-20 



2 The Spa Agreement also made provision that half the receipts from 
Bulgaria and from the constituent parts of the former Austro-Hungarian 
Empire should be divided in the above proportions, and that, of the other 
half, 40 per cent should go to Italy and 60 per cent to Greece, Rumania, 
and Jugo-Slavia. 

K 



J 



130 A REVISION OF THE TREATY chap. 

cent would have been more exactly in accordance 
with the claims of each under the Treaty. In view 
of all the facts, however, the Spa division may 
be held to have done substantial justice on the 
whole. 

At the same time the priority to Belgium to the 
extent of £100,000,000 (gold) was confirmed ; and 
it was agreed that the loans made to Belgium during 
the war by the other Allies, for which Germany is 
liable under Article 232 1 of the Treaty, should be 
dealt with out of the moneys next received. These 
loans, including interest, will amount by the end 
of 1921 to something in the neighbourhood of 
£300,000,000 (gold), of which £110,000,000 will be 
due to Great Britain, £100,000,000 to France, and 
£90,000,000 to the United States. 

Under the Spa Agreement, therefore, sums received 
from Germany in cash, and credits in respect of 
deliveries in kind, were to be applied to the discharge 
of her obligations in the following order : 

1. The cost of the Armies of Occupation, esti- 
mated at £150,000,000 (gold) up to May 1, 1921. 

2. Advances to Germany for food purchases under 
the Spa Agreement, say £18,000,000 (gold). 

3. Belgian priority of £100,000,000 (gold). 

1 " Germany undertakes ... to make reimbursement of all sums 
which Belgium has borrowed from the Al'ies and Associated Governments 
up to November 11, 1918, together with interest at the rate of 5 per cent 
per annum on such sums." The priority for this repayment arranged at Spa 
is a little different from the procedure contemplated in the Treaty, which 
provided for repayment not later than May 1, 1926. 



iv THE DIVISION OF THE RECEIPTS 131 

4. Repayment of Allied advances to Belgium, say 
£300,000,000 (gold). 

This amounts to about £570,000,000 (gold) alto- 
gether, of which I estimate that about £150,000,000 
(gold) is due to France, £170,000,000 (gold) to Great 
Britain, £110,000,000 (gold) to Belgium, and 
£140,000,000 (gold) to the United States. 

Very few people, I think, have appreciated how 
large a sum is due to the United States under the 
strict letter of the Agreement. Since France has 
already received almost two-thirds of her share as 
above, whilst Belgium has had about one-third, 
Great Britain less than one-third, and the United 
States nothing, it follows that, even on the most 
favourable hypothesis as to Germany's impending 
payments, comparatively small sums are strictly due 
to France in the near future. 

The Financial Agreement of August 13, 1921, 
was aimed at modifying the harshness of these 
priority provisions towards France. 1 The details of 
this Agreement have not yet been published, but it 
is said to make a somewhat different provision from 
that contemplated at Spa for the repayment of 
Allied war advances to Belgium. 

The reception of this Agreement by the French 
public was a good illustration of the effect of keeping 
people in the dark. The effect of the Spa Agreement 
had never been understood in France, with the result 

1 See above, p. 126. 



132 A REVISION OF THE TREATY chap. 

that the August Financial Agreement, which much 
improved France's position, was believed to interfere 
seriously with her existing rights. M. Doumer never 
had the pluck to tell his public the truth, although, 
if he had, it would have been clear that, in signing 
the Agreement provisionally, he was acting in the 
interests of his country. 

The mention of the United States invites attention 
to the anomalous position of that country under the 
Peace Treaty. Her failure to ratify the Treaty 
forfeits none of her rights under it, either in 
respect of her share of the costs of the Army of 
Occupation (which, however, is offset to a small 
extent by the German ships she has retained), or in 
respect of the repayment of her war advances to 
Belgium. 1 It follows that the United States is 
entitled, on the strict letter, to a considerable 
part of the cash receipts from Germany in the near 
future. 

There is, however, a possible offset to these claims 
which has been mentioned already (p. 71) but must 
not be overlooked here. Under the Treaty private 
German property in an Allied country is, in the 
case of countries adopting the Clearing House Scheme, 

1 Article 1 of the Treaty of Peace between Germany and the United 
States, signed on August 25, 1921, and since ratified, expressly stipulates 
that Germany undertakes to accord to the United States all the rights, 
privileges, indemnities, reparations, and advantages specified in the joint 
resolution of Congress of July 2, 1921, " Including all the rights and ad- 
vantages stipulated for the benefit of the United States under the Treaty 
of Versailles which the United States shall enjoy notwithstanding the 
fact that such Treaty has not been ratified by the United States." 



iv THE DIVISION OF THE RECEIPTS 133 

applied in the first instance to debts owing from 
German nationals to the nationals of the Allied 
country in question, and the balance, if any, is 
retained for Reparation. What is to happen in the 
case of similar German assets in the United States 
is still undetermined. The surplus assets, the value 
of which may be about ^SOC^OOO^OO, 1 will be 
retained, until Congress determines otherwise, by the 
Enemy Property Custodian. There have been negoti- 
ations from time to time for a loan in favour of 
Germany on the security of these assets, but the 
legal position has rendered progress impossible. At 
any rate this important German asset is still under 
American control. 

1 According to a statement published in Washington in August 1921 
the Custodian had in his hands German property to the value of $314,179,463. 



CHAPTER V 

THE LEGALITY OF THE CLAIM FOR PENSIONS 

" The application of morals to international politics is more a 
thing to be desired than a thing which has been in operation. Also, 
when I am made a participant in crime along with many millions of 
other people, I more or less shrug my shoulders." — Letter from a 
friendly critic to the author of The Economic Consequences of the 
Peace. 

We have seen in the preceding chapter that the 
claim for Pensions and Allowances is nearly double 
that for Devastation, so that its inclusion in the 
Allies' demands nearly trebles the bill. It makes the 
difference between a demand which can be met and 
a demand which cannot be met. Therefore it is 
important. 

In The Economic Consequences of the Peace I gave 
reasons for the opinion that this claim was contrary 
to our engagements and an act of international 
immorality. A good deal has been written about it 
since then, but I cannot admit that my conclusion 
has been seriously disputed. Most American writers 
accept it ; most French writers ignore it ; and most 
English writers try to show, not that the balance of 

134 



ch. v LEGALITY OF CLAIM FOR PENSIONS 135 

evidence is against me, but that there are a few 
just plausible, or just not -negligible, observations 
to be made on the other side. Their contention is 
that of the Jesuit professors of Probabilism in the 
seventeenth century, namely, that the Allies are 
justified unless it is absolutely certain that they 
are wrong, and that any probability in their favour, 
however small, is enough to save them from 
mortal sin. 

But most people in the countries of Germany's 
former enemies are not ready to excite themselves 
very much, even if my view is accepted. The passage 
at the head of this chapter describes a common 
attitude. International politics is a scoundrel's game 
and always has been, and the private citizen can 
scarcely feel himself personally responsible. If our 
enemy breaks the rules, his action may furnish us 
with an appropriate opportunity for expressing our 
feelings ; but this must not be taken to commit us 
to a cool opinion that such things have never 
happened before and must never happen again. 
Sensitive and honourable patriots do not like it, but 
they " more or less shrug " their shoulders. 

There is some common sense in this. I cannot 
deny it. International morality, interpreted as a 
crude legalism, might be very injurious to the world. 
It is at least as true of these vast-scale transactions, 
as of private affairs, that we judge wrongly if we do 
not take into account everything. And it is superficial 



136 A REVISION OF THE TREATY chap. 

to appeal, the other way round, to the principles 
which do duty when Propaganda is blistering herd 
emotion with its brew of passion, sentiment, self- 
interest, and moral fiddlesticks. 

But whilst I see that nothing rare has happened 
and that men's motives are much as usual, I do still 
think that this particular act was an exceptionally 
mean one, made worse by hypocritical professions 
of moral purpose. My object in returning to it is 
partly historical and partly practical. New material 
of high interest is available to instruct us about the 
course of events. And if for practical reasons we can 
agree to drop this claim, we shall make a settlement 
easier. 

Those who think that it was contrary to the Allies' 
engagements to charge pensions against the enemy 
base this opinion on the terms notified to the German 
Government by President Wilson, with the authority 
of the Allies, on November 5, 1918, subject to which 
Germany accepted the Armistice conditions. 1 The 
contrary opinion that the Allies were fully entitled 
to charge pensions if they considered it expedient 
to do so, has been supported by two distinct lines of 
argument : first that the Armistice conditions of 
November 11, 1918, were not subject to President 
Wilson's notification of November 5, 1918, but 

1 I have given the exact text of the relevant passages in The Economic 
Consequences of Ike Peace, chapter v. 



v LEGALITY OF CLAIM FOR PENSIONS 137 

superseded it, more particularly regarding Reparation ; 
and alternatively that the wording of President 
Wilson's notification properly understood does not 
exclude Pensions. 

The first line of argument was adopted by M. Klotz 
and the French Government during the Peace 
Conference, and has been approved more recently 
by M. Tardieu. 1 It was repudiated by the whole 
of the American Delegation at Paris, and never 
definitely supported by the British Government. 
Responsible writers about the Treaty, other than 
French, have not admitted it. 2 It was also explicitly 
abandoned by the Peace Conference itself in its reply 
to the German observations on the first draft of the 
Treaty. The second line of argument was that of 
the British Government during the Peace Conference, 
and it was an argument on these lines which finally 
converted President Wilson. I will deal with the 
two arguments in turn. 

1. Various persons have published particulars, 
formerly confidential, which allow us to reconstruct 
the course of the discussions about the Armistice. 
These begin with the examination of the Armistice 

1 The Truth about the Treaty, p. 208. 

2 E.g. The History of the Peace Conference of Paris, published under the 
auspices of the Institute of International Affairs, delivers judgement as 
follows (vol. ii. p. 43) : " It is this statement then (i.e. President Wilson's 
notification of Nov. 5, 1918) which must be taken as the ruling document 
in any discussion as to what the Allies were entitled to claim by way of 
reparation in the Treaty of Peace, and it is difficult to interpret it other- 
wise than as a deliberate limitation of their undoubted right to recover the 
whole of their war costs." 



138 A REVISION OF THE TREATY chap. 

Terms by the Allied Council of War on November 
1, 1918. 1 

The first point which emerges is that the reply of 
the Allied Governments to President Wilson (which 
afterwards furnished the text of his notification of 
Nov. 5, 1918, addressed to Germany), defining their 
interpretation of the references to Reparation in the 
Fourteen Points, was drawn up and approved at 
the same session of the Supreme Council (that of 

1 The following particulars are taken from Les Negotiations secretes et les 
Quatre Armistices avec pieces jvstificatives by " Mermeix," published at Paris 
by Ollendorff, 1921. This remarkable volume has not received the attention 
it deserves. The greater part of it consists of a verbatim transcript of the 
secret proces verbaux of those meetings of the Supreme Council of the Allies 
which were concerned with the Armistice Terms. On the face of it this 
disclosure is authentic and is corroborated in part by M. Tardieu. There 
are many passages of extraordinary interest on points not connected with 
my present topic, as for example the discussion of the question whether the 
Allies should insist on the surrender of the German fleet if the Germans 
made trouble about it. Marshal Foch emerges from this record very 
honourably, as determined that nothing unnecessary should be demanded 
of the enemy, and that no blood should be spilt for a vain or trifling object. 
Sir Douglas Haig was of the same opinion. In reply to Col. House, Foch 
spoke thus : "If they accept the terms of the Armistice we are imposing 
on them, it is a capitulation. Such a capitulation gives us everything we 
could get from the greatest victory. In such circumstances I cannot admit 
that I have the right to risk the life of a single man more." And again on 
October 31 : " If our conditions are accepted we can wish for nothing better. 
We make war only to attain our ends, and we do not want to prolong 
it uselessly." In reply to a proposal by Mr. Balfour that the Germans in 
evacuating the East should leave one-third of their arms behind them, Foch 
observed : " The intrusion of all these clauses makes our document 
chimerical, since the greater part of the conditions are incapable of being 
executed. We should do well to be sparing with these unrealisable in- 
junctions." Towards Austria also he was humane and feared the prolonga- 
tion of the blockade which the politicians were proposing. " I intervene," 
he said on October 31, 1918, " in a matter which is not a military one strictly 
speaking. We are to maintain the blockade until Peace, that is to say until 
we have made a new Austria. That may take a long time ; which means a 
country condemned to famine and perhaps impelled to anarchy." 



v LEGALITY OF CLAIM FOR PENSLONS 139 

November 1, 2) which drew up the relevant clauses 
of the Armistice Terms ; and that the Allies did 
not finally approve the reply to President Wilson 
until after that they had approved that very 
draft of the Armistice Terms which, according to 
the French contention, superseded and negatived 
the terms outlined in the reply to President 
Wilson. 1 

The record of the proceedings of the Supreme 
Council (as now disclosed) lends no support to the 
existence in their minds of the duplicity which the 
French contention attributes to them. On the 
other hand, it makes it clear that the Council did 
not intend the references to Reparation in the 
Armistice Terms to modify in any way their reply 
to the President. 

The record, in so far as it is relevant to this point, 
may be summarised as follows : 2 M. Clemenceau 
called attention to the absence of any reference in 
the first draft of the Armistice Terms to the restitution 
of stolen property or to reparation. Mr. Lloyd 
George replied that there ought to be some reference 
to restitution, but that reparation was a Peace 
condition rather than an Armistice condition. M. 
Hymans agreed with Mr. Lloyd George. MM. Sonnino 
and Orlando went further and thought that neither 
had any place in the Armistice Terms, but were ready 

1 This is corroborated by M. Tardieu, op. cit. p. 71. 
2 See Mermeix, op. cit. pp. 226-250. 



140 A REVISION OF THE TREATY chap. 

to accept the Lloyd George-Hymans compromise of 
including Restitution but not Reparation. The 
discussion was postponed for M. Hymans to draft 
a formula. On its resumption next day, it was 
M. Clemenceau who produced a formula consisting 
of the three words Reparation des dommages. 
M. Hymans, M. Sonnino, and Mr. Bonar Law all 
expressed doubt whether this was in place in the 
Armistice Terms. M. Clemenceau replied that he 
only wanted to mention the principle, and that 
French public opinion would be surprised if there 
was no reference to it. Mr. Bonar Law objected : 
"It is already mentioned in our letter to President 
Wilson which he is about to communicate to Germany. 
It is useless to repeat it." x This observation met 
with no contradiction, but it was agreed on senti- 
mental grounds and for the satisfaction of public 
opinion to add M. Clemenceau's three words. The 
Council then passed on to other topics. At the last 
moment, as they were about to disperse, M. Klotz 
slipped in the words : "It would be prudent to put 
at the head of the financial questions a clause reserving 
the future claims of the Allies, and I propose to you 
the wording ' Without prejudice to any subsequent 
claims and demands on the part of the Allies.' " 2 

1 This very important remark by Mr. Bonar Law is also quoted by 
M. Tardieu (op. cit. p. 70) and is therefore of undoubted authenticity. 

2 " II serait prudent de mettre en tete des questions financieres une 
clause reservant les revendications futures des Allies et je vous propose le 
texte suivant : ' Sous reserve de toutes revendications et reclamations 
ulterieures de la part des Allies.' " 



v LEGALITY OF CLAIM FOR PENSIONS 141 

It does not seem to have occurred to any of those 
present that this text could be deemed of material 
importance or otherwise than as protecting the Allies 
from the risk of being held to have surrendered any- 
existing claims through failure to mention them in 
this document ; and it was accepted without dis- 
cussion. M. Klotz afterwards boasted that by this 
little device he had abolished the Fourteen Points, 
so far as they affected Reparation and Finance 
(although the very same meeting of the Allies had 
despatched a Note to President Wilson accepting 
them), and had secured to the Allies the right to 
demand from Germany the whole cost of the War. 
But I think the world will decide that the Supreme 
Council was right in attaching to these words no 
particular importance. Personal pride in so smart a 
trick has led M. Klotz, and his colleague M. Tardieu, 
to persist too long with a contention which decent 
persons have now abandoned. 

There was an episode which has lately come to light 
connected with this passage which may be recounted 
as illustrating the pitfalls of the world. As M. Klotz 
only introduced his form of words as the Council was 
breaking up, it is likely that no undue attention was 
concentrated on it. But ill-fortune may dog any one, 
and the same state of affairs seems to have led to 
one of the scribes getting the words down wrong. 
Instead of revendication, which means demand, the 
word renonciation, which means concession, got written 



142 A REVISION OF THE TREATY chap. 

in the text handed to the Germans for signature. 1 This 
word was not so suitable. But M. Klotz suffered 
less inconvenience from this mistake than might have 
been expected, since at the Peace Conference no one 
noticed that the French text of the Armistice Agree- 
ment as officially circulated, which M. Klotz used in 
arguing before the Reparation Committee, agreed in 
its wording with what he had intended it to be and 
not with the text which Germany had actually signed. 
Nevertheless it is the word renonciation which is 
still to be found in the official texts of the British 
and German Governments. 2 

2. The other line of argument raises more subtle 
intellectual issues and is not a mere matter of 
prestidigitation. If it be granted that our rights 
are governed by the terms of the Note addressed to 
Germany by President Wilson in the name of the 
Allies on November 5, 1918, the question depends on 
the interpretation of these terms. As Mr. Baruch 
and M. Tardieu have now published between them 
the greater part of the official reports (including 

1 That is to say, this text ran, " Sous reserve de toute renonciation et 
reclamation ulterieure," instead of "Sous reserve de toutes revendications 
et reclamations ulterieures." 

2 I record this episode as an historical curiosity. In my opinion it 
makes no material difference to the argument whether the text runs 
" revendications et reclamations " or " renonciation et reclamation " ; 
for I regard either form of words as merely a protective phrase. But the 
plausibility of M. Klotz's position is decidedly weakened (if so weak a case 
is capable of further weakening) if it is the latter phrase which is authentic. 
The Editor of the Institute of International Affairs' History of the Peace 
Conference of Paris, who was the first to discover and publish the discrepancy 
in question (vol. v. pp. 370-372), takes the view that the question of which 
text is used makes a material difference to the value of M. Klotz's argument. 



V LEGALITY OF CLAIM FOR PENSIONS 143 

very secret documents) bearing on the discussion of 
this problem during the Peace Conference, we are 
in a better position than before to assess the value 
of the Allies' case. 

The pronouncements by the President which were 
to form the basis of Peace provided that there should 
be "no contributions " and " no punitive damages," 
but the invaded territories of Belgium, France, 
Kumania, Serbia, and Montenegro were to be restored. 
This did not cover losses from submarines or from air 
raids. Accordingly the Allied Governments, when 
they accepted the President's formulas, embodied a 
reservation, on the point as to what " restoration " 
covered, in the following sentence : " By it (i.e. 
restoration of invaded territory) they understand that 
compensation will be made by Germany for all 
damage done to the civilian population of the Allies 
and to their property by the aggression of Germany 
by land, by sea, and from the air." 

The natural meaning and object of these words, 
which, the reader must remember, are introduced as 
an interpretation of the phrase " restoration of 
invaded territory," is to assimilate submarine and 
cruiser aggression by sea and aeroplane and airship 
aggression by air to military aggression by land, 
which, in all the circumstances, was a reasonable 
extension of the phrase, provided it was duly notified 
beforehand. The Allies rightly apprehended that, if 
they accepted the phrase as it stood, " restoration 



144 A RE VISION OF THE TREATY chap. 

of invaded territory " might be limited to damage 
resulting from military aggression by land. 

This interpretation of the reservation of the Allied 
Governments, namely, that it assimilated offensive 
action by sea or air to offensive action by land, but 
that " restoration of invaded territory " could not 
possibly include pensions and separation allowances, 
was adopted by the American Delegation at Paris. 
They construed the German liability to be in respect 
of the " direct physical damage to property of non- 
military character and direct physical injury to 
civilians " 1 caused by such aggression ; the only 
further liability which they admitted being under a 
different part of the President's pronouncements, 
namely, those relating to breaches of International 
law, such as the breach of the Treaty of Neutrality 
in favour of Belgium, and the illegal treatment of 
prisoners of war. 

I doubt if any one would ever have challenged 
this interpretation if the British Prime Minister had 
not won a General Election by promises to extract 
from Germany more than this interpretation could 
justify, 2 and if the French Government also had not 
raised unjustifiable expectations. These promises 
were made recklessly. But it was not easy for their 

1 Baruch, op. cit. p. 19. 

2 As Mr. Baruch puts it (op. cit. p. 4) : " At an election held after the 
Armistice and agreement as to the basic terms of peace, the English people, 
by an overwhelming majority, returned to power their Prime Minister on 
the basis of an increase in the severity of these terms of the peace, especially those 
of reparation." (The italics are mine.) 



v LEGALITY OF CLAIM FOR PENSLONS 145 

authors to admit, so soon after they had been given, 
that they were contrary to our engagements. 

The discussion opened with the delegations, other 
than the American, claiming that we had not com- 
mitted ourselves to anything which precluded our 
demanding from Germany all the loss and damage, 
direct and indirect, which had resulted from the war. 
" One of the Allies," says Mr. Baruch, " went even 
further, and made claim for loss and damage result- 
ing from the fact that the Armistice was concluded 
so unexpectedly that the termination of hostilities 
involved it in financial losses." 

Various arguments were employed in the early 
stages, the British delegates to the Reparation Com- 
mittee of the Peace Conference, namely, Mr. Hughes, 
Lord Sumner and Lord CunlifTe, supporting the 
demand for complete war costs and not merely 
reparation for damage. They urged (1) that one 
of the principles enunciated by President Wilson 
was that each item of the Treaty should be just, and 
that it was in accordance with the general principles 
of justice to throw on Germany the whole costs of 
the war ; and (2) that Great Britain's war costs had 
resulted from Germany's breach of the Treaty of 
Neutrality of Belgium, and that therefore Great 
Britain (but not necessarily, on this argument, all 
the other Allies) was entitled to complete repayment 
in accordance with the general principles of Inter- 
national law. These general arguments were, I think, 



146 A REVISION OF THE TREATY chap. 

overwhelmed by the speeches made on behalf of 
the American delegates by Mr. John Foster Dulles. 
The following are extracts from what he said : "If 
it is in accordance with our sentiment that the prin- 
ciples of reparation be severe, and in accord with our 
material interest that these principles be all inclusive, 
why, in defiance of these motives, have we proposed 
reparation in certain limited ways only ? It is be- 
cause, gentlemen, we do not regard ourselves as free. 
We are not here to consider as a novel proposal 
what reparation the enemy should in justice pay ; 
we have not before us a blank page upon which we 
are free to write what we will. We have before us 
a page, it is true ; but one which is already filled 
with writing, and at the bottom are the signatures 
of Mr. Wilson, of Mr. Orlando, of M. Clemenceau, 
and of Mr. Lloyd George. You are all aware, I am 
sure, of the writing to which I refer : it is the agreed 
basis of peace with Germany." Mr. Dulles then 
recapitulated the relevant passages and continued : 
" Can there be any question that this agreement does 
constitute a limitation ? It is perfectly obvious that 
it was recognised at the time of the negotiations in 
October and November 1918 that the reparation 
then specified for would limit the Associated Govern- 
ments as to the reparation which they could demand 
of the enemy as a condition of peace. The whole 
purpose of Germany was to ascertain the maximum 
which would be demanded of her in the terms of 



v LEGALITY OF CLAIM FOR PENSIONS 147 

peace, and the action of the Allies in especially stipu- 
lating at that time for an enlargement of the 
original proposal respecting reparation is explicable 
only on the theory that it was understood that once 
an agreement was concluded they would no longer be 
free to specify the reparation which Germany must 
make. We have thus agreed that we would give 
Germany peace if she would do certain specified 
things. Is it now open to us to say, ' Yes, but 
before you get peace you must do other and further 
things ' ? We have said to Germany, ' You may 
have peace if among other things you perform certain 
acts of reparation which will cost you, say, ten million 
dollars.' Are we not now clearly precluded from 
saying, ' You can have peace provided you perform 
other acts of reparation which will bring your total 
liability to many times that which was originally 
stipulated ' ? No ; irrespective of the justice of the 
enemy making the latter reparation, it is now too 
late. Our bargain has been struck for better or for 
worse ; it remains only to give it a fair construction 
and practical application." 

It is a shameful memory that the British delegates 
never withdrew their full demands, to which they 
were still adhering when, in March 1921, the ques- 
tion was taken out of their hands by the Supreme 
Council. The American Delegation cabled to the 
President, who was then at sea, for support in 
maintaining their position, to which he replied that 



148 A REVISION OF THE TREATY chap. 

the American Delegation should dissent, and if 
necessary dissent publicly, from a procedure which 
" is clearly inconsistent with what we deliberately 
led the enemy to expect and cannot now honourably 
alter simply because we have the power." * 

After this the discussions entered on a new 
phase. The British and French Prime Ministers 
abandoned the contentions of their delegates, ad- 
mitted the binding force of the words contained in 
their Note of November 5, 1918, and settled down 
to extract some meaning from these words which 
would compose their differences and satisfy their 
constituents. What constituted " damage done to 
the civilian population " ? Could not this be made 
to cover military pensions and the separation allow- 
ances which had been made to the civilian dependants 
of soldiers ? If so, the bill against Germany could 
be raised to a high enough figure to satisfy nearly 
every one. It was pointed out, however, as Mr. 
Baruch records, " that financial loss resulting from 
the absence of a wage-earner did not cause any more 
* damage to the civilian population ' than did an equal 
financial loss involved in the payment of taxes to 
provide military equipment and like war costs." 
In fact, a separation allowance or a pension was 
simply one of many general charges on the Ex- 
chequer arising out of the costs of the war. If such 
charges were to be admitted as civilian damage, 

1 Baruch, op. cit. p. 25. 



v LEGALITY OF CLAIM FOR PENSIONS 149 

it was a very short step back to the claim for the 
entire costs of the war, on the ground that these 
costs must fall on the taxpayer who, generally 
speaking, was a civilian. The sophistry of the argu- 
ment became exposed by pushing it to its logical 
conclusion. Nor was it clear how pensions and 
allowances could be covered by words which were 
themselves an interpretation of the phrase " restora- 
tion of invaded territory." And the President's 
conscience, though very desirous by now to be 
converted (for he had on hand other controversies 
with his colleagues which interested him more than 
this one), remained unconvinced. 

The American delegates have recorded that the 
final argument which overbore the last scruples of 
the President was contained in a Memorandum 
prepared by General Smuts 1 on March 31, 1919. 
Briefly, this argument was, that a soldier becomes a 
civilian again after his discharge, and that, therefore, 

1 This Memorandum, which has been published in extenso by Mr. Baruch 
(op. cit. p. 29 seq.), belonged to the category of most secret documents. 
It has been given to the world by itself without the accompanying circum- 
stances which, without justifying its arguments (on which indeed no further 
light could be thrown beyond what we already have in the narrative of Mr. 
Baruch), might yet throw light on individual motives. I agree with the 
comment made by The Economist (Oct. 22, 1921) in reviewing vol. iv. of 
the History of the Peace Conference of Paris (published under the auspices 
of the Institute of International Affairs), which has reprinted this Memo- 
randum, that " a very serious injustice will be done to the reputation of 
General Smuts if this document continues to be reproduced and circulated 
without any explanation of the circumstances in which it was prepared." 
Nevertheless it is well that the world should have this document, and it 
must take its place in a story which is more important to the world than the 
motives and reputations of individual actors in it. 



ISO A REVISION OF THE TREATY chap. 

a wound, the effects of which persist after he has 
left the Army, is damage done to a civilian. 1 This 
is the argument by which " damage done to the 
civilian population " came to include damage done 
to soldiers. This is the argument on which, in the 
end, our case was based ! For at this straw the 
President's conscience clutched, and the matter was 
settled. 

It had been settled in the privacy of the Four. 
I will give the final scene in the words of Mr. Lamont, 
one of the American delegates : 2 

" I well remember the day upon which Presi- 
dent Wilson determined to support the inclusion 
of pensions in the Reparation Bill. Some of us 
were gathered in his library in the Place des 
Etats-Unis, having been summoned by him to 
discuss this particular question of pensions. 
We explained to him that we couldn't find 
a single lawyer in the American Delegation 

1 The following is the salient passage of the Memorandum : " After 
the soldier's discharge as unfit he rejoins the civilian population, and as for 
the future he cannot (in whole or in part) earn his own livelihood, he is 
suffering damage as a member of the civilian population, for which the 
German Government are again liable to make compensation. In other 
words, the pension for disablement which he draws from the French Govern- 
ment is really a liability of the German Government, which they must under 
the above reservation make good to the French Government. It could not 
be argued that as he was disabled while a soldier he does not suffer damage 
as a civilian after his discharge if he is unfit to do his ordinary work. He 
does literally suffer as civilian after his discharge, and his pension is intended 
to make good this damage, and is therefore a liability of the German 
Government.'" 

2 What Really Happened at Paris, p. 272. 



v LEGALITY OF CLAIM FOR PENSIONS 151 

that would give an opinion in favour of in- 
cluding pensions. All the logic was against it. 
' Logic ! logic ! ' exclaimed the President, ' I 
don't care a damn for logic. I am going to 
include pensions ! ' " x 

Well ! perhaps I was too near these things at 
the time and have become touched in the emotions, 
but I cannot " more or less shrug my shoulders." 
Whether or not that is the appropriate gesture, I 
have here set forth, for the inspection of Englishmen 
and our Allies, the moral basis on which two-thirds 
of our claims against Germany rest. 

1 Mr. Lamont adds that " it was not a contempt of logic, but simply an 
impatience of technicality ; a determination to brush aside verbiage and get 
at the root of things. There was not one of us in the room whose heart did 
not beat with a like feeling." These words not merely reflect a little naively 
the modern opportunist's impatience of legality and respect for the fait 
accompli, but also recall the atmosphere of exhaustion and the longing of 
every one to be finished, somehow, with this dreadful controversy, which 
for months had outraged at the same time the intellects and the con- 
sciences of most of the participators. Yet, even so, to their lasting credit, 
the American Delegation had stood firm for the law, and it was the Presi- 
dent, and he alone, who capitulated to the lying exigencies of politics. 



CHAPTER VI 

REPARATION, INTER-ALLY DEBT, AND 
INTERNATIONAL TRADE 

It is fashionable at the present time to urge a re- 
duction of the Allies' claims on Germany and of 
America's claims on the Allies, on the ground that, 
as such payments can only be made in goods, insist- 
ence on these claims will be positively injurious to 
the claimants. 

That it is in the self - interest of the Allies and of 
America to abate their respective demands, I hold 
to be true. But it is better not to use bad arguments, 
and the suggestion that it is necessarily injurious to 
receive goods for nothing is not plausible or correct. 
I seek in this chapter to disentangle the true from 
the false in the now popular belief that there is 
something harmful in compelling Germany to " fling 
goods at us." 

The argument is a little intricate and the reader 
must be patient. 

1. It does not make very much difference whether 

the debtor country pays by sending goods direct 

152 



ch. vi REPARATION, INTER-ALLY DEBT, ETC. 153 

to the creditor or by selling them elsewhere and 
remitting cash. In either case the goods come on 
to the world market and are sold competitively or 
co-operatively in relation to the industries of the 
creditor, as the case may be, this distinction depend- 
ing on the nature of the goods rather than on the 
market in which they are sold. 

2. It is not much use to earmark non-competitive 
goods against the payment of the debt, so long as 
competitive goods are being sold by the debtor 
country in some other connection, e.g. to pay for its 
own imports. This is simply to bury one's head in 
the sand. For example, out of the aggregate of 
goods which Germany would naturally export in 
the event of her exports being forcibly stimulated, 
it might be possible to pick out a selection of non- 
competitive goods ; but it would not affect the 
situation in the slightest degree to pretend that it 
was these particular goods, and not the others, 
which were paying the debt. It is therefore useless 
to prescribe that Germany shall pay in certain 
specified commodities if these are commodities which 
she would export in any case, and useless, equally, 
to forbid her to pay in certain specified commodities, 
if that merely means that she will export these 
commodities to some other market to pay for her 
imports generally. No expedient on our part for 
making Germany pay us, or on America's part for 
making us pay her, in the shape of particular 



154 A REVISION OF THE TREATY chap. 

commodities affects the position, except in so far as 
it modifies the form of the paying country's exports 
as a whole. 

3. On the other hand, it does us no harm to receive 
for nothing the proceeds of goods, even when they 
are sold competitively, if these goods would be sold 
on the world's market in any case. 

4. If the result of pressing the debtor country to 
pay is to cause it to offer competitive goods at a 
lower price than it would otherwise, the particular 
industries in the creditor country which produce 
these goods are bound to suffer, even though there 
are balancing advantages for the creditor country 
as a whole. 

5. In so far as the payments made by the debtor 
country accrue, not to the country with which the 
debtor's goods are competing, but to a third party, 
clearly there are no balancing advantages to offset 
the direct disadvantages under 4. 

6. The answer to the question, whether the 
balancing advantages to the creditor country as a 
whole outweigh the injury to particular industries 
within that country, depends on the length of the 
period over which the creditor country can reasonably 
expect to go on receiving the payments. At first 
the injury to the industries which suffer from the 
competition and to those employed in them is likely 
to outweigh the benefit of the payments received. 
But, as in the course of time the capital and labour 



vi REPARATION, INTER-ALLY DEBT, ETC. 155 

are absorbed in other directions, a balance of advan- 
tage may accrue. 

The application of these general principles to the 
particular case of ourselves and Germany is easy. 
Germany's exports are so preponderantly competitive 
with ours, that, if her exports are forcibly stimulated, 
it is certain that she will have to sell goods against 
us. This is not altered by the fact that it is possible 
to pick out a few exports or potential exports, such 
as potash or sugar, which are not competitive. If 
Germany is to have a large surplus of exports over 
imports, she must increase her competitive sales. 
In The Economic Consequences of the Peace (pp. 175- 
185) I demonstrated this at some length on the basis 
of pre-war statistics. I showed not only that the 
goods she must sell, but the markets she must sell 
them in, were largely competitive with our own. 
The statistics of post-war trade show that the former 
argument still holds good. The following table 
shows the proportions in which her export trade was 
divided between the principal articles of export, 
(1) in 1913, (2) in the first nine months of 1920 (the 
latest period for which I have figures in this precise 
form), and (3) in the four months June to September 
1921, these last figures representing, I think, a not 
exactly comparable classification, and being pro- 
visional only : 

[Table 



156 



A REVISION OF THE TREATY 





Percentage of Total Exports. 


German Exports. 












1913. 


1920 
(Jan. -Sept.) 


1921 
(June-Sept.) 


Iron and steel goods .... 


13-2 


20 


22 


Machinery (including motor cars) 




7-5 


12 


17 


Chemicals and dyes 




4 


13 


9-5 


Fuel 










7 


6-5 


1 


Paper goods 












2-5 


4 


3-5 


Electrical goods 












2 


35 


? 


Silk goods 












2 


3 


) 


Cotton goods . 












5-5 


3 


r 15 


Woollen goods 












6 


. . 


1 


Glass 












•5 


2-5 


2 


Leather goods . 












3 


2 


4 


Copper goods . 












1-5 


1-5 


j 



It is clear, therefore, that, though raw materials 
other than coal, such as potash, sugar, and timber, may 
yield a trifle, Germany can only compass an export 
trade of great value by exporting iron and steel goods, 
chemicals, dyes, textiles, and coal, for these are the 
only export articles of which she can produce great 
quantities. It is also clear that there have been no 
very marked changes in the proportionate importance 
of the different export trades since the war, except 
that the exchange position has somewhat stimulated, 
relatively to the others, those export lines, such as 
iron goods, machinery, chemicals, dyes, and glass, 
which do not involve much importation of raw 
materials. 

To compel Germany to pay a large indemnity is 
therefore the same thing as to compel her to expand 



vi REPARATION, INTER-ALLY DEBT, ETC. 157 

some or all of the above-mentioned exports to a 
greater extent than she would do otherwise. The 
only way in which she can effect this expansion is 
by offering the goods at a lower price than that at 
which other countries care to offer them ; putting 
herself in a position to offer them cheap, partly by 
the German working classes lowering their standard 
of life without reducing their efficiency in the same 
degree, and partly by German export industries being 
subsidised, directly or indirectly, at the expense of 
the rest of the community. 

These facts, formerly overlooked, are now, per- 
haps, exaggerated by popular opinion. For Prin- 
ciple (3), enunciated above, requires attention. Our 
industries will be subjected to strong competition 
from Germany, just as they were before the war, 
whether we exact Reparation or not ; and we must 
not ascribe to the Reparation policy inconveniences 
which would exist in any case. The remedy lies not 
in the now popular nostrums for prescribing the form 
in which Germany shall pay, but in reducing the 
aggregate amount to a reasonable figure. For by 
prescribing the manner in which she shall pay us 
we do not control the form of her export trade as a 
whole ; and by absorbing for reparation purposes 
the whole of a particular type of export, we compel 
her to expand her other exports to pay for her imports 
and other international obligations. On the other 
hand, we can secure from her moderate payments, 



158 A REVISION OF THE TREATY chap. 

on the sort of scale, for example, on which she might 
have been building up new foreign investments, 
without stimulating her exports as a whole to a 
greater activity than they would enjoy otherwise. 
This is the correct course for Great Britain from the 
standpoint of her own self-interest only. 

The practical application of Principles (5) and (6) 
is also clear. So far as (5) is concerned, Great Britain 
is to receive not the whole of the indemnity, but 
about a fifth of it ; whilst (6) provides the argument 
which to me has always appeared decisive. The 
permanence of reparation payments on a large scale 
for a long period of years is, to say the least, not to 
be reckoned on. Who believes that the Allies will, 
over a period of one or two generations, exert adequate 
force over the German Government, or that the 
German Government can exert adequate authority 
over its subjects, to extract continuing fruits on a 
vast scale from forced labour ? No one believes it 
in his heart ; no one at all. There is not the faintest 
possibility of our persisting with this affair to the 
end. But if this is so, then, most certainly, it will 
not be worth our while to disorder our export trades 
and disturb the equilibrium of our industry for two 
or three years ; much less to endanger the peace of 
Europe. 

The same principles apply with one modification 
to the United States and to the exaction by her of 
the debts which the Allied Governments owe. The 



vi REPARATION, INTER-ALLY DEBT, ETC. 159 

industries of the United States would sutler, not so 
much from the competition of cheap goods from the 
Allies in their endeavours to pay their debts, as from 
the inability of the Allies to purchase from America 
their usual proportion of her exports. The Allies 
would have to find the money to pay America, not 
so much by selling more as by buying less. The 
farmers of the United States would suffer more than 
the manufacturers ; if only because increased imports 
can be kept out by a tariff, whilst there is no such 
easy way of stimulating diminished exports. It is, 
however, a curious fact that whilst Wall Street and 
the manufacturing East are prepared to consider a 
modification of the debts, the Middle West and South 
is reported (I write ignorantly) to be dead against it. 
For two years Germany was not required to pay cash 
to the Allies, and during that period the manufacturers 
of Great Britain were quite blind to what the con- 
sequences would be to themselves when the payments 
actually began. The Allies have not yet been 
required to begin to pay cash to the United States, 
and the farmers of the latter are still as blind as were 
the British manufacturers to the injuries they will 
suffer if the Allies ever try seriously to pay in full. 
I recommend Senators and Congressmen from the 
agricultural districts of the United States, lest they 
soon suffer the same moral and intellectual ignominy 
as our own high-Reparation men, to invest at once in 
a little caution in their opposition to the efforts of 



160 A REVISION OF THE TREATY chap. 

Mr. Harding's Administration to secure for itself a 
free hand to act wisely in this matter (and even 
perhaps generously) in accordance with the progress 
of opinion and of events. 

The decisive argument, however, for the United 
States, as for Great Britain, is not the damage to 
particular interests (which would diminish with time), 
but the unlikelihood of permanence in the exaction 
of the debts, even if they were paid for a short period. 
I say this, not only because I doubt the ability of the 
European Allies to pay, but because of the great 
difficulty of the problem which the United States has 
before her in any case in balancing her commercial 
account with the Old World. 

American economists have examined somewhat 
carefully the statistical measure of the change from 
the pre-war position. According to their estimates, 
America is now owed more interest on foreign in- 
vestments than is due from her, quite apart from 
the interest on the debts of the Allied Governments ; 
and her mercantile marine now earns from foreigners 
more than she owes them for similar services. Her 
excess of exports of commodities over imports 
approaches $3000 million a year ; x whilst, on the 
other side of the balance, payments, mainly to 
Europe, in respect of tourists and of immigrant 

1 In the year of boom to June 1920, on a total trade of $13,350 
million, the excess of exports over imports was $2870 million. In 
the year, partly one of depression, to June 1921, on a total trade of 
$10,150 million, the excess of exports was $2860 million. 



vi REPARATION, INTER-ALLY DEBT, ETC. 161 

remittances are estimated at not above $1000 million 
a year. Thus, in order to balance the account as 
it now stands, the United States must lend to the 
rest of the world, in one shape or another, not less 
than $2000 million a year, to which interest and 
sinking fund on the European Governmental War 
Debts would, if they were paid, add about $600 
million. 

Recently, therefore, the United States must have 
been lending to the rest of the world, mainly Europe, 
something like $2000 million a year. Fortunately 
for Europe, a fair proportion of this was by way of 
speculative purchases of depreciated paper currencies. 
From 1919 to 1921 the losses of American specu- 
lators fed Europe ; but this source of income can 
scarcely be reckoned on permanently. For a time 
the policy of loans can meet the situation ; but, as the 
interest on past loans mounts up, it must in the long 
run aggravate it. 

Mercantile nations have always employed large 

funds in overseas trade. But the practice of foreign 

investment, as we know it now, is a very modern 

contrivance, a very unstable one, and only suited 

to peculiar circumstances. An old country can in 

this way develop a new one at a time when the latter 

could not possibly do so with its own resources alone ; 

the arrangement may be mutually advantageous, 

and out of abundant profits the lender may hope 

to be repaid. But the position cannot be reversed. 

M 



162 A REVISION OF THE TREATY chap. 

If European bonds are issued in America on the 
analogy of the American bonds issued in Europe 
during the nineteenth century, the analogy will be 
a false one ; because, taken in the aggregate, there 
is no natural increase, no real sinking fund, out of 
which they can be repaid. The interest will be 
furnished out of new loans, so long as these are 
obtainable, and the financial structure will mount 
always higher, until it is not worth while to maintain 
any longer the illusion that it has foundations. The 
unwillingness of American investors to buy European 
bonds is based on common sense. 

At the end of 1919 I advocated (in The Economic 
Consequences of the Peace) a reconstruction loan 
from America to Europe, conditioned, however, on 
Europe's putting her own house in order. In the 
past two years America, in spite of European com- 
plaints to the contrary, has, in fact, made very large 
loans, much larger than the sum I contemplated, 
though not mainly in the form of regular, dollar-bond 
issues. No particular conditions were attached to 
these loans, and much of the money has been lost. 
Though wasted in part, they have helped Europe 
through the critical days of the post- Armistice period. 
But a continuance of them cannot provide a solution 
for the existing dis-equilibrium in the balance of 
indebtedness. 

In part the adjustment may be effected by the 
United States taking the place hitherto held by 



vi REPARATION, INTER-ALLY DEBT, ETC. 163 

England, France, and (on a small scale) Germany 
in providing capital for those new parts of the world 
less developed than herself — the British Dominions 
and South America. The Russian Empire, too, in 
Europe and Asia, is to be regarded as virgin soil, 
which may at a later date provide a suitable outlet 
for foreign capital. The American investor will 
lend more wisely to these countries, on the lines on 
which British and French investors used to lend to 
them, than direct to the old countries of Europe. 
But it is not likely that the whole gap can be bridged 
thus. Ultimately, and probably soon, there must 
be a readjustment of the balance of exports and 
imports. America must buy more and sell less. 
This is the only alternative to her making to Europe 
an annual present. Either American prices must 
rise faster than European (which will be the case if 
the Federal Reserve Board allows the gold influx 
to produce its natural consequences), or, failing this, 
the same result must be brought about by a further 
depreciation of the European exchanges, until Europe, 
by inability to buy, has reduced her purchases to 
articles of necessity. At first the American exporter, 
unable to scrap all at once the processes of produc- 
tion for export, may meet the situation by lowering 
his prices ; but when these have continued, say for 
two years, below his cost of production, he will be 
driven inevitably to curtail or abandon his business. 
It is useless for the United States to suppose that 



164 A REVISION OF THE TREATY chap. 

an equilibrium position can be reached on the basis 
of her exporting at least as much as at present, and 
at the same time restricting her imports by a tariff. 
Just as the Allies demand vast payments from 
Germany, and then exercise their ingenuity to prevent 
her paying them, so the American Administration 
devises, with one hand, schemes for financing exports, 
and, with the other, tariffs which will make it as 
difficult as possible for such credits to be repaid. 
Great nations can often act with a degree of folly 
which we should not excuse in an individual. 

By the shipment to the United States of all the 
bullion in the world, and the erection there of a sky- 
scraping golden calf, a short postponement may be 
gained. But a point may even come when the 
United States will refuse gold, yet still demand to be 
paid — a new Midas vainly asking more succulent 
fare than the barren metal of her own contract. 

In any case the readjustment will be severe, and 
injurious to important interests. If, in addition, the 
United States exacts payment of the Allied debts, 
the position will be intolerable. If she persevered 
to the bitter end, scrapped her export industries and 
diverted to other uses the capital now employed in 
them, and if her former European associates decided 
to meet their obligations at whatever cost to them- 
selves, I do not deny that the final result might be 
to America's material interest. But the project is 
utterly chimerical. It will not happen. Nothing is 



vi REPARATION, INTER-ALLY DEBT, ETC. 165 

more certain than that America will not pursue such 
a policy to its conclusion ; she will abandon it as 
soon as she experiences its first consequences. Nor, 
if she did, would the Allies pay the money. The 
position is exactly parallel to that of German Repara- 
tion. America will not carry through to a conclusion 
the collection of Allied debt, any more than the Allies 
will carry through the collection of their present 
Reparation demands. Neither, in the long run, is 
serious politics. Nearly all well-informed persons 
admit this in private conversation. But we live in 
a curious age when utterances in the press are deliber- 
ately designed to be in conformity with the worst- 
informed, instead of with the best-informed, opinion, 
because the former is the wider spread ; so that for 
comparatively long periods there can be discrepancies, 
laughable or monstrous, between the written and the 
spoken word. 

If this is so, it is not good business for America to 
embitter her relations with Europe, and to disorder 
her export industries for two years, in pursuance of 
a policy which she is certain to abandon before it 
has profited her. 

For the benefit of any reader who enjoys an 
abstract statement, I summarise the argument thus. 
The equilibrium of international trade is based 
on a complicated balance between the agriculture 
and the industries of the different countries of 
the world, and on a specialisation by each in the 



166 A REVISION OF THE TREATY chap, vi 

employment of its labour and its capital. If one 
country is required to transfer to another without 
payment great quantities of goods, for which this 
equilibrium does not allow, the balance is destroyed. 
Since capital and labour are fixed and organised in 
certain employments and cannot flow freely into 
others, the disturbance of the balance is destructive 
to the utility of the capital and labour thus fixed. 
The organisation, on which the wealth of the modern 
world so largely depends, suffers injury. In course of 
time a new organisation and a new equilibrium can 
be established. But if the origin of the disturbance 
is of temporary duration, the losses from the injury 
done to organisation may outweigh the profit of 
receiving goods without paying for them. Moreover, 
since the losses will be concentrated on the capital 
and labour employed in particular industries, they 
will provoke an outcry out of proportion to the injury 
inflicted on the community as a whole. 



CHAPTER VII 

THE REVISION OF THE TREATY AND THE 
SETTLEMENT OF EUROPE 

Shylock. I'll have my bond ; I will not hear thee speak : 
I'll have my bond ; and therefore speak no more. 

The deeper and the fouler the bogs into which 
Mr. Lloyd George leads us, the more credit is his for 
getting us out. He leads us in to satisfy our desires ; 
he leads us out to save our souls. He hands us down 
the primrose path and puts out the bonfire just in 
time. Who, ever before, enjoyed the best of heaven 
and hell as we do ? 

In England, opinion has nearly completed its swing, 
and the Prime Minister is making ready to win a 
General Election on Forbidding Germany to Pay, 
Employment for Every one, and a Happier Europe for 
All. Why not, indeed ? But this Faustus of ours 
shakes too quickly his kaleidoscope of halos and hell- 
fire, for me to depict the hues as they melt into 
one another. I shall do better to construct an in- 
dependent solution, which is possible in the sense 
that nothing but a change in the popular will is 

necessary to achieve it, hoping to influence this will a 

167 



1 68 A REVISION OF THE TREATY chap. 

little, but leaving it to those, whose business it is, to 
gauge the moment at which it will be safe to embroider 
such patterns on a political banner. 

If I look back two years and read again what I 
wrote then, I see that perils which were ahead are 
now passed safely. The patience of the common 
people of Europe and the stability of its institutions 
have survived the worst shocks they will receive. 
Two years ago the Treaty, which outraged Justice, 
Mercy, and Wisdom, represented the momentary 
will of the victorious countries. Would the victims 
be patient ? Or would they be driven by despair 
and privation to shake Society's foundations ? We 
have the answer now. They have been patient. 
Nothing very much has happened, except pain and 
injury to individuals. The communities of Europe 
are settling down to a new equilibrium. We are 
almost ready to turn our minds from the avoidance 
of calamity to the renewal of health. 

There have been other influences besides that 
patience of the common people which often before 
has helped Europe through worse evils. The actions 
of those in power have been wiser than their words. 
It is only a slight exaggeration to say that no parts 
of the Peace Treaties have been carried out, except 
those relating to frontiers and to disarmament. Many 
of the misfortunes which I predicted as attendant on 
the execution of the Reparation Chapter have not 
occurred, because no serious attempt has been made 



vii THE SETTLEMENT OF EUROPE 169 

to execute it. And, whilst no one can predict with 
what particular sauce the makers of the Treaty will 
eat their words, there can no longer be any question 
of the actual enforcement of this Chapter. And there 
has been a third factor, not quite in accordance with 
expectations, paradoxical at first sight, but natural, 
nevertheless, and concordant with past experience, — ■ 
the fact that it is in times of growing profits and not 
in times of growing distress that the working classes 
stir themselves and threaten their masters. When 
times are bad and poverty presses on them they 
sink back again into a weary acquiescence. Great 
Britain and all Europe have learnt this in 1921. Was 
not the French Revolution rather due perhaps to the 
growing wealth of eighteenth-century France — for at 
that time France was the richest country in the 
world — than to the pressure of taxation or the ex- 
actions of the old regime ? It is the profiteer, not 
privation, that makes man shake his chains. 

In spite, therefore, of trade depression and dis- 
ordered exchanges, Europe, under the surface, is 
much stabler and much healthier than two years ago. 
The disturbance of minds is less. The organisation, 
destroyed by war, has been partly restored ; trans- 
port, except in Eastern Europe, is largely repaired ; 
there has been a good harvest, everywhere but in 
Russia, and raw materials are abundant. Great 
Britain and the United States and their markets 
overseas have suffered a cyclical fluctuation of trade 



170 A REVISION OF THE TREATY chap. 

prosperity of a greater amplitude than ever before ; 
but there are indications that the worst point is 
passed. 

Two obstacles remain. The Treaty, though un- 
executed, is not revised. And that part of organisa- 
tion, which consists in currency regulation, public 
finance, and the foreign exchanges, remains nearly as 
bad as it ever was. In most European countries there 
is still no proper balance between the expenditure of 
the State and its income, so that inflation continues 
and the international values of their currencies are 
fluctuating and uncertain. The suggestions which 
follow are mainly directed towards these problems. 

Some contemporary plans for the reconstruction 
of Europe err in being too paternal or too compli- 
cated ; also, sometimes, in being too pessimistic. The 
patients need neither drugs nor surgery, but healthy 
and natural surroundings in which they can exert 
their own recuperative powers. Therefore a good 
plan must be in the main negative ; it must consist 
in getting rid of shackles, in simplifying the situation, 
in cancelling futile but injurious entanglements. At 
present every one is faced by obligations which they 
cannot meet. Until the problem set to the Finance 
Ministers of Europe is a possible one, there can be 
little incentive to energy or to the exercise of skill. 
But if the situation was made such that an insolvent 
country could have only itself to blame, then the 



vii THE SETTLEMENT OF EUROPE 171 

highest integrity and the most accomplished financial 
technique would, in each separate country, have its 
chance. I seek by the proposals of this chapter, not 
to prescribe a solution, but to create a situation in 
which a solution is possible. 

In their main substance, therefore, my suggestions 
are not novel. The now familiar project of the can- 
cellation, in part or in their entirety, of the Repara- 
tion and Inter-allied Debts, is a large and unavoidable 
feature of them. But those who are not prepared 
for these measures must not pretend to a serious 
interest in the Reconstruction of Europe. 

In so far as such cancellation or abatement involves 
concessions by Great Britain, an Englishman can 
write without embarrassment and with some know- 
ledge of the tendency of popular opinion in his 
own country. But where concessions by the United 
States are concerned he is in more difficulty. The 
attitude of a section of the American press furnishes 
an almost irresistible temptation to deal out the sort 
of humbug (or discrete half-truths) which are believed 
to promote cordiality between nations ; it is easy 
and terribly respectable ; and, what is much worse, 
it may even do good where frankness would do harm. 
I pursue the opposite course, with a doubting and 
uneasy conscience, yet supported (not only in this 
chapter but throughout my book) by the hope, 
possibly superstitious, that openness does good in the 
long run, even when it makes trouble at first. 



172 A REVISION OF THE THE AT Y chap 

So far, Reparation on a large scale has not been 
collected from Germany. So far, the Allies have 
not paid interest to the United States on what they 
owe. Our present troubles, when they are not attri- 
butable to the after-effects of war and the cyclical 
depression of trade, are due, therefore, not to the 
enforcement of these claims, but to the uncertainties 
of their possible enforcement. It follows, therefore, 
that merely to put off the problem will do us no good. 
That is what we have been doing for two years already. 
Even to reduce our Reparation demands to Germany's 
maximum actual capacity and really force her to pay 
them, might make matters worse than they are. To 
write down inter-ally debts by half and then try to 
collect them, would be an aggravation, not a cure, 
of the existing difficulties. The solution, therefore, 
must not be one which tries to extract the last 
theoretical penny from everybody ; its main object 
must be to set the Finance Ministers of every country 
a problem not incapable of wise solution over the 
next five years. 

I. The Revision of the Treaty 

The Reparation Commission have assessed the 
Treaty claims at 138 milliard gold marks, of which 
132 milliards are for pensions and damage and 6 
milliards for Belgian debt. They have not stated in 
what proportions the 1 32 milliards are divided between 
pensions and damages. My own assessment of the 



vii THE SETTLEMENT OF EUROPE 173 

Treaty claims (p. 122 above) is 110 milliards, of 
which 74 milliards are for pensions and allowances, 30 
milliards for damage, and 6 milliards for Belgian debt. 

The arguments of Chapter VI. make it incumbent 
on those who are convinced by them to abandon as 
dishonourable the claims to pensions and allowances. 
This reduces the claims to 36 milliards, a sum which it 
may not be in our interest to exact in full, but which is 
probably within Germany's theoretical capacity to pay. 

Apart from clearing out of the way various clauses 
which are no longer operative or useful, and from 
terminating the occupation on conditions set forth 
below, I should limit my Revision of the Treaty to 
this simple stroke of the pen. Let the present assess- 
ment of 138 milliard gold marks be replaced by 36 
milliard gold marks. 

We are strictly entitled under the Armistice Terms 
to these 36 milliards ; and if prudence recommends 
an abatement below that figure, such abatement can 
properly be made, on terms, by those and those only 
who are entitled to the claims. I estimate with 
some confidence that this sum of 36 milliards is 
divisible between the Allies about in the proportions 
shown in the table on the following page. 

The payment by Germany of 5 per cent interest 
and 1 per cent sinking fund on this total sum is 
not, in my judgement, theoretically impossible. But 
it could only be done by stimulating her export 
industries in a manner injurious and irritating to 



174 



A REVISION OF THE TREATY 





Damage. 


Belgian Debt. 


Total. 


British Empire 


9 


2 


11 


France. 


16 


2 


18 


Belgium 


3 




3 


Italy .... 


1 




1 


United States 




2 


2 


Others. 


1 




1 




30 


6 


36 



Great Britain, and by imposing on her Treasury a 
financial problem of such difficulty that it would tend 
to unsound finance and to weak, unstable Govern- 
ments. Even though this payment is theoretically 
possible, I do not think that it is practically obtainable 
over a period of thirty years. 

I recommend, therefore, that, as a separate arrange- 
ment from the Revision of the Treaty as above, the 
British Empire should waive the whole of their 
claims, with the exception of 1 milliard gold marks 
reserved for a special purpose explained below, and 
should undertake to square the claims of Italy and 
the minor claimants by cancellation of debt owing 
from them ; thus leaving Germany to pay 18 milliards 
to France and 3 milliards to Belgium (on the assump- 
tion that the United States also would forgo the 
trifle due to her). This sum should be discharged 
by an annual payment of 6 per cent of the sum due 
(being 5 per cent interest and 1 per cent sinking fund) 
over a period of thirty years. With the assistance 



vii - THE SETTLEMENT OF EUROPE 175 

of minor measures to ease the opening period, it is 
reasonable to suppose that this amount could be paid 
without serious injury to any one. 

In so far as it proves convenient to discharge this 
liability in goods, and not in cash, so much the better. 
But I see no advantage in laying stress on this. It 
would be wiser to leave Germany to find the money 
as best she can, any payment in goods being by 
mutual agreement, as in the Wiesbaden plan. 

It may lead, however, to great anomalies to fix 
the annual payments in terms of gold over so long 
a period as thirty years. If gold prices fall, the burden 
may become intolerable. If gold prices rise, the 
claimants may be cheated of their expectations. The 
annual payment should be adjusted, therefore, by 
some impartial authority, with reference to an index 
number of the commodity-value of gold. 

The other Treaty change relates to the Occupation. 
It would promote peaceable relations in Europe if, 
as a part of the new settlement, the Allied troops 
were withdrawn altogether from German territory, 
and all rights of invasion for whatever purpose 
waived, except by leave of a majority vote of the 
League of Nations. But in return the British Empire 
and the United States should guarantee to France 
and Belgium all reasonable assistance, short of war- 
fare, in securing satisfaction for their reduced claims ; 
whilst Germany should guarantee the complete de- 
militarisation of her territory west of the Rhine. 



176 A REVISION OF THE TREATY chap. 

II. The Satisfaction of the Allies 

France. — Is it in the interest of France to accept 
this settlement ? If it is combined with further con- 
cessions from Great Britain and the United States 
by the cancellation of her debts to them, it is 
overwhelmingly in her interest. 

What is her present balance-sheet of claims and 
liabilities ? She is entitled to 52 per cent of what 
Germany pays. On p. 69 I have calculated what 
this will be under the London Settlement, (a) on 
the basis of German exports at the rate of 6 milliards, 
namely 3-56 milliard gold marks ; and (b) on the 
basis of exports at the rate of 10 milliards, namely 
4-60 milliard gold marks. France's share, therefore, 
is 1-85 milliards per annum on assumption (a), and 
2-39 milliards on assumption (b). On the other hand, 
she owes the United States $3634 million and the 
United Kingdom £557 million. If these sums be 
converted into gold marks at par, and the annual 
charge on them is calculated at 5 per cent for interest 
and 1 per cent for sinking fund, her liability is 1-48 
milliards per annum. That is to say, if Germany 
pays in full and if the more favourable assumption 
(b) is adopted as to the growth of her exports, the 
most for which France can hope under existing 
arrangements is a net sum of -91 milliard gold marks 
(£45,500,000 gold) per annum. Whereas under the 
revised scheme she will not only be entitled to a 



vii THE SETTLEMENT OF EUROPE 177 

greater sum, namely 1-08 milliard gold marks 
(£54,000,000 gold) per annum ; but, inasmuch as she 
will be accorded a priority on Germany's available 
resources, and as the total charge is within Germany's 
capacity, she may reasonably expect to be paid. 

My proposal provides for the complete restoration 
of the devastated provinces at a fair valuation of the 
actual damage done, and it abandons other rival 
claims which stand in the way of the priority of this 
paramount claim. But apart from this, about which 
opinions will differ, and apart from the increased 
likelihood which it affords of really getting payment, 
France will actually receive a larger sum than if the 
letter of the existing agreements is adhered to all 
round. 

Belgium is entitled at present to 8 per cent of the 
receipts, which under the London Settlement would 
amount to 280 million gold marks per annum on 
assumption (a) and 368 million on assumption (b). 
Under the new proposal she will receive 180 million 
gold marks per annum and will gain in certainty 
what she loses in possible receipts. The satisfaction 
of her existing priority should be adjusted by mutual 
agreement between herself and France. 

Italy would gain immensely. She is entitled to 
10 per cent of the receipts under the London Settle- 
ment (together with some claims on problematical 
receipts from Austria and Bulgaria) ; that is to say, 
326 million gold marks per annum on assumption 

N 



I7S A REVISION OF THE TREATY chap. 

(a) and 460 million on assumption (b). But these 
sums are far below the annual charge of her obliga- 
tions towards the United Kingdom and the United 
States, which, converted into gold marks on the same 
basis as that employed above in the case of France, 
amounts to 1000 million gold marks per annum. 

III. The Assistance of New States 

I have reserved above, out of the claims of Great 
Britain, a sum of one milliard gold marks, with the 
object, not that she should retain this sum for herself, 
but that she should use it to ease the financial prob- 
lems of two states for which she has a certain re- 
sponsibility, namely Austria and Poland. 

Austria's problems are well known and attract 
a general sympathy. The Viennese were not made 
for tragedy ; the world feels that, and there is 
none so bitter as to wish ill to the city of Mozart. 
Vienna has been the capital of degenerate great- 
ness, but, released from imperial temptations, she 
is now free to fulfil her true role of providing for 
a quarter -part of Europe the capital of com- 
merce and the arts. Somehow she has laughed 
and cried her way through the last two years ; and 
now, I think, though on the surface her plight is 
more desperate than before, a very little help will be 
enough. She has no army, and by virtue of the 
depreciation of her money a trifling internal debt. 
Too much help may make of her a lifelong beggar ; 



vii THE SETTLEMENT OF EUROPE 179 

but a little will raise her from despondency and 
render her financial problem no longer beyond solution. 

My proposal, then, is to cancel the debts she owes 
to foreign governments, including empty claims to 
Eeparation, and to give her a comparatively small sum 
out of the milliard gold marks reserved from British 
claims on Germany. Credits placed at her disposal 
in Berlin, equivalent in value to 300 million gold 
marks, to be available, as required, over a period of 
five years, might be enough. 

For the other new States, the cancellation of debt 
owing, and, in the case of Hungary, of Eeparation 
claims, should be enough, except for Poland. 

Poland, too, must be given a possible problem, but 
it is not easy to be practical with so impracticable 
a subject. Her main problem can be solved only by 
time, and the recovery of her neighbours. I deal 
here only with the urgent question of making just 
possible for her a reorganisation of currency, and of 
facilitating a peaceable intercourse between herself 
and Germany. For this purpose I would assign to 
her the balance of the reserved milliard, namely, 
700 million gold marks, of which the annual interest 
should be available to her unconditionally, but of 
which the capital should be employed only for a 
currency reorganisation, under conditions to be 
approved by the United States and Great Britain. 

In its essentials this scheme is very simple. I 
think that it satisfies my criterion of leaving every 



180 A REVISION OF THE TREAT \ chap. 

Finance Minister in Europe with a possible problem. 
The rest must come gradually, and I will not burden 
the argument of this book by considering along what 
lines the detailed solutions should be sought. 

Who are the losers ? Even on paper — far more in 
reality — every continental country gains an advantage. 
But on paper the United States and the United 
Kingdom are losers. What is each of them giving up ? 

Under the London Settlement Great Britain is 
entitled to 22 per cent of the receipts, which is from 
780 to 1010 million gold marks per annum (£39,000,000 
to £50,500,000 gold) according to which assumption is 
adopted as to the volume of German exports. She is 
owed by various European governments (including 
Kussia, see Appendix No. IX.) £1,800,000,000, which at 
6 per cent for interest and sinking fund is £108,000,000 
per annum. On paper she would forgo these sums, 
say £150,000,000 per annum, altogether. In actual 
fact, her prospects of securing more than a fraction 
of this amount are remote. Great Britain lives by 
commerce, and most Englishmen now need but little 
persuading that she will gain more in honour, prestige, 
and wealth by employing a prudent generosity to 
preserve the equilibrium of commerce and the well- 
being of Europe, than by attempting to exact a hateful 
and crushing tribute, whether from her victorious 
Allies or her defeated enemy. 

The United States would forgo on paper a capital 
sum of about 6500 million dollars, which, at 6 per 



vii THE SETTLEMENT OF EUROPE 181 

cent, represents an annual charge of $390,000,000 
(£78,000,000 gold). But in my opinion the chance of 
her being actually paid any considerable amount of 
this, if she tries to exact it, is decidedly remote. 1 Is 
there any likelihood of the United States joining in 
such a scheme soon enough (for I feel confident she 
will cancel these debts in the end) to be useful ? 

Most Americans, with whom I have discussed this 
question, express themselves as personally favourable 
to the cancellation of the European debts, but add 
that so great a majority of their countrymen think 
otherwise that such a proposal is at present outside 
practical politics. They think, therefore, that it is 
premature to discuss it ; for the present, America 
must pretend she is going to demand the money and 
Europe must pretend she is going to pay it. Indeed, 
the position is much the same as that of German 
Reparation in England in the middle of 1921 . Doubt- 
less my informants are right about this public opinion, 
the mysterious entity which is the same thing perhaps 
as Rousseau's General Will. Yet, all the same, I do 
not attach, to what they tell me, too much importance. 
Public opinion held that Hans Andersen's Emperor 
wore a fine suit ; and in the United States especially, 
public opinion changes sometimes, as it were, en bloc. 

1 This scheme is in no way concerned with the debt of Great Britain to 
the United States, which is excluded from the above figures. The ques- 
tion of the right treatment of this debt (which differs from the others chiefly 
because the interest on it is capable of being actually collected in cash) 
raises other issues with which I am not dealing here. The above proposals 
for cancellation relate solely to the debts owing by the Governments of Con- 
tinental Europe to the Governments of Great Britain and the United States. 



182 A REVISION OF THE TREATY chap. 

If, indeed, public opinion were an unalterable 
thing, it would be a waste of time to discuss public 
affairs. And though it may be the chief business of 
newsmen and politicians to ascertain its momentary- 
features, a writer ought to be concerned, rather, with 
what public opinion should be. I record these plati- 
tudes because many Americans give their advice, as 
though it were actually immoral to make suggestions 
which public opinion does not now approve. In 
America, I gather, an act of this kind is considered 
so reckless, that some improper motive is at once 
suspected, and criticism takes the form of an inquiry 
into the culprit's personal character and antecedents. 

Let us inquire, however, a little more deeply into 
the sentiments and emotions which underlie the 
American attitude to the European debts. They 
want to be generous to Europe, both out of good feeling 
and because many of them now suspect that any other 
course would upset their own economic equilibrium. 
But they don't want to be " done." They do not 
want it to be said that once again the old cynics in 
Europe have been one too many for them. Times, 
too, have been bad and taxation oppressive ; and 
many parts of America do not feel rich enough at the 
moment to favour a light abandonment of a possible 
asset. Moreover, these arrangements, between nations 
warring together, they liken much more closely than 
we do to ordinary business transactions between indi- 
viduals. It is, they say, as though a bank having 



vii THE SETTLEMENT OE EUROPE 183 

made an unsecured advance to a client, in whom they 
believe, at a difficult time when he would have gone 
under without it, this client were then to cry off paying. 
To permit such a thing would be to do an injury to 
the elementary principles of business honour. 

The average American, I fancy, would like to 
see the European nations approaching him with a 
pathetic light in their eyes and the cash in their hands, 
saying, " America, we owe to you our liberty and our 
life ; here we bring what we can in grateful thanks, 
money not wrung by grievous taxation from the 
widow and orphan, but saved, the best fruits of 
victory, out of the abolition of armaments, militarism, 
Empire, and internal strife, made possible by the help 
you freely gave us." And then the average American 
would reply : "I honour you for your integrity. It 
is what I expected. But I did not enter the war for 
profit or to invest my money well. I have had my 
reward in the words you have just uttered. The 
loans are forgiven. Keturn to your homes and use 
the resources I release to uplift the poor and the 
unfortunate." And it would be an essential part of 
the little scene that his reply should come as a com- 
plete and overwhelming surprise. 

Alas for the wickedness of the world ! It is not in 
international affairs that we can secure the sentimental 
satisfactions which we all love. For only individuals 
are good, and all nations are dishonourable, cruel, and 
designing. In deciding whether Italy (for example) 



1 84 A REVISION OF THE TREATY chap. 

must pay what she owes, America must consider the 
consequences of trying to make her pay, — so far as 
self-interest is concerned, in terms of economic equi- 
librium between America and Italy, and, so far as 
generosity is concerned, in terms of Italian peasants 
and their lives. And whilst the various Prime 
Ministers will telegraph something suitable, drafted by 
their private secretaries, to the effect that America's 
action makes the moment of writing the most im- 
portant in the history of the world and proves that 
Americans are the noblest creatures living, America 
must not expect adequate or appropriate thanks. 

Nevertheless, since time presses, we cannot rely 
on American assistance, and we must do without it 
if necessary. If America does not feel ready to 
participate in a Conference of Kevision and Eecon- 
struction, Great Britain should be prepared to do her 
part in the cancellation of paper claims, irrespective 
of similar action by the United States. 

The simplicity of my plan may be emphasised by 
summarising it. (1) Great Britain, and if possible 
America too, to cancel all the debts owing them from 
the Governments of Europe and to waive their claims 
to any share of German Reparation ; (2) Germany to 
pay 1260 million gold marks (£63,000,000 gold) per 
annum for 30 years, and to hold available a lump sum 
of 1000 million gold marks for assistance to Poland and 
Austria ; (3) this annual payment to be assigned in the 
shares 1080 million gold marks to France and 180 
million to Belgium. 



vii THE SETTLEMENT OF EUROPE 185 

This would be a just, sensible, and permanent 
settlement. If France were to refuse it, she would 
indeed be sacrificing the substance to the shadow. 
In spite of superficial appearances to the contrary, it 
is also in the self-interest of Great Britain. Perhaps 
British public opinion, profoundly altered though it 
now is, may not yet be reconciled to obtaining nothing. 
But this is a case where a wise nation will do best 
by acting in a large way. I have not neglected to 
consider with care the various possible devices by 
which Great Britain might get, or appear to get, 
something for herself from the settlement. She 
might take, for instance, in satisfaction of her claims 
some of the C Bonds under the London Settlement, 
which, having a third priority after provision for the 
A and B Bonds, can be given a nominal value but 
are really worth nothing. She might, in lieu of 
receiving a share of the proceeds of the German 
customs, stipulate that her goods should be admitted 
into Germany free of duty. She might seek a partial 
control over German industries, or obtain the services 
of German organisation for the future exploitation 
of Russia. Plans of this sort attract an ingenious 
mind and are not to be discarded too hastily. Yet 
I prefer the simple plan, and I believe that all these 
devices are contrary to true wisdom. 

There is a disposition in some quarters to insist 
that any concessions to France by Great Britain and 
the United States, affecting Reparation and Inter- 



186 A REVISION OF THE TREATY chap. 

Ally Debt, should be conditional on France's accept- 
ance of a more pacific policy towards the rest of the 
world than that to which she herself appears to be 
inclined. I hope that France will abandon her opposi- 
tion to proposals for reduced military and naval 
establishments. What a handicap her youth will 
suffer if she maintains conscription whilst her neigh- 
bours, voluntarily or involuntarily, have abandoned 
it ! Does she realise the impossibility of friendship 
between Great Britain and any neighbouring Power 
which embarks on a large programme of submarines ? 
I hope, too, that France will forget her dangerous 
ambitions in Central Europe and will limit strictly 
those in the Near East ; for both are based on rubbishy 
foundations and will bring her no good. That she has 
anything to fear from Germany in the future which we 
can foresee, except what she may herself provoke, is a 
delusion. When Germany has recovered her strength 
and pride, as in due time she will, many years must 
pass before she again casts her eyes Westward. 
Germany's future now lies to the East, and in that 
direction her hopes and ambitions, when they revive, 
will certainly turn. 

France has an opportunity now of consolidating her 
national position into one of the stablest, safest, 
richest on the face of the earth ; self-contained ; well- 
but not over-populated ; the heir of a peculiar and 
splendid civilisation. Neither whining about devas- 
tated districts, which are easily repaired, nor boasting 



vn THE SETTLEMENT OF EUROPE 187 

of military hegemonies, which can quickly ruin her, let 
her lift up her head as the leader and mistress of 
Europe in the peaceful practices of the mind. 

Nevertheless, these objects are not to be gained by 
bargaining and cannot be imposed from without. 
Therefore they must not be dragged into the Repara- 
tion Settlement. This Settlement must be offered 
France on one condition only, — that she accepts it. 
But if, like Shylock, she claims her pound of flesh, then 
let the Law prevail. Let her have her bond, and let us 
have our bonds too. Let her get what she can from 
Germany and pay what she owes to the United States 
and England. 

The chief question for dispute is, perhaps, whether 
an annual payment by Germany of £63,000,000 (gold) 
is enough. I admit that the payment of a somewhat 
larger sum may prove to be within her capacity. But 
I recommend this figure because on the one hand it is 
sufficient to restore the destruction done in France, 
yet on the other is not so crushing that, to make 
Germany pay it, we need be in a position to invade 
her every spring and autumn. We must fix the pay- 
ment at an amount which Germany herself will 
recognise as not unjust, and which is sufficiently 
within her maximum capacity to leave her some 
incentive to work and pay it off. 

Suppose that we knew the theoretical maximum 
of Germany's capacity to produce and sell abroad a 
surplus of goods, or could hit on some sliding scale 



188 A REVISION OF THE TREATY ch. vii 

which would automatically absorb year by year what- 
ever surplus there was ; should we be wise to demand 
it ? The project of extracting at the point of the 
bayonet — for that is what it would mean — a payment 
so heavy that it would never be paid voluntarily, 
and to go on doing this until all the makers of the Peace 
Treaty of Versailles have been long dead and buried in 
their local Valhallas, is neither good nor sensible. 

My own proposals, moderate though they may seem 
in comparison with others, throw on Germany a very 
great burden. They procure for France an enor- 
mous benefit. Frenchmen, having fed to satiety on 
imaginary figures, are nearly ready, I think, to find 
a surprising flavour and piquancy in real ones. Let 
them consider what a tremendous financial strength 
my scheme would give them. Freed from external 
debt, they would receive in real values each year for 
thirty years a payment equivalent in gold to nearly 
half the gold reserve now held by the Bank of France ; 
and at the end of the set period Germany would 
have paid back ten times what she took after 1870. 

Is it for Englishmen to complain ? Are they 
really losers ? One cannot cast up a balance-sheet 
between incommensurables. But peace and amity 
might be won for Europe. And England is only asked 
(as I fancy she knows pretty well, by now, in her 
bones) to give up something which she will never get 
anyhow. The alternative is that we and the United 
States will be jockeyed out of our claims amidst a 
general international disgust. 



APPENDIX OF DOCUMENTS 

I. The Spa Agreement, July 1920 

(A) Summary 1 of the Agreement upon Reparations between the 
Allies, signed by the British Empire, France, Italy, Japan, 
Belgium, and Portugal. 

Article 1 provides that in pursuance of the Treaty of Versailles 
the sums received from Germany for reparations shall be divided 
in the following proportions : 

France 52 per cent. 

British Empire . . . . 22 „ 

Italy 10 „ 

Belgium 8 ,, 

Japan and Portugal . . . £ of 1 per cent each. 

The remaining 6£ per cent is reserved for the Serbo-Croat- 
Slovene State and for Greece, Kumania, and other Powers not 
signatories of the Agreement. 

Article 2 provides that the aggregate amount received for 
reparation from Austria-Hungary and Bulgaria, together with 
amounts that may be received in respect of the liberation of 
territories belonging to the former Austro-Hungarian Monarchy, 
shall be divided : 

(a) As to half in the proportions mentioned in Article 1. 
(6) As to the other half, Italy shall receive 40 per cent, while 
60 per cent is reserved for Greece, Rumania, and the 
Serbo-Croat-Slovene State and other Powers entitled 
to reparations but not signatories of the Agreement. 

1 The following is the official summary issued at the time. The complete 
text of the Agreement has not been published. 

189 



190 A REVISION OF THE TREATY 

Article 3 provides that the Allied Governments shall adopt 
measures to facilitate if necessary the issue by Germany of loans 
destined for the internal requirements of that country and to 
the prompt discharge of the German debt to the Allies. 

Article 4 deals in detail with the keeping of accounts by the 
Reparation Commission. 

Article 5 secures to Belgium her priority of £100,000,000 
gold and enumerates the securities affected by such priority. 1 

Article 6 deals with the valuation of ships surrendered under 
the various Peace Treaties, and provides for the allocation of 
sums received for the hire of such ships. It deals also with 
questions outstanding as to the decisions taken by the Belgian 
Prize Courts. Belgium receives compensation out of the shares 
of the other Allied Powers. 

Article 7 refers to the Allied cruisers, floating docks, and 
material handed over under the Protocol of January 10, 1920, 
as compensation for the German warships which were sunk. 

Article 8 declares that the same Protocol shall apply to 
the proceeds of the sale of ships and war material surrendered 
under the naval clauses of the Treaty, virtually including the 
proceeds of naval war material sold by the Reparation Com- 
mission. 

Article 9 gives Italy an absolutely prior claim to certain 
specified sums as a set-off to amounts due to her by Austria- 
Hungary and Bulgaria. 

Article 10 reserves the rights of Poland and declares that 
this Agreement shall not apply to her. 

Article 11 maintains the rights of countries who lent money 
to Belgium before November 11, 1918, and makes provision for 
repayment immediately after satisfaction of the Belgian claim 
to priority in respect of £100,000,000. 

Article 12 maintains the rights of the Allied Powers to the 

1 Of which the most tangible were 400,000,000 Danish kroner payable in 
respect of Sleswig, certain sums were from Luxemburg for coal, any balance 
available in respect of German ships seized as prizes in Brazilian ports, and 
any balance available towards reparation out of German assets in the United 
States. 



APPENDIX OF DOCUMENTS 191 

repayment of credits granted to ex-enemy Powers for the purposes 
of relief. 

Article 13 reserves the question of fixing the cost of the 
armies of occupation in Germany on a uniform basis for discussion 
with the United States of America. 

(B) The Allied Note to Germany on the subject of Coal Deliveries 

1. The German Government undertakes to place at the 
disposal of the Allies, from August 1, 1920, for the ensuing six 
months, 2,000,000 tons of coal per month, this figure having 
been approved by the Reparation Commission. 

2. The Allied Governments will credit the Reparation accounts 
with the value of this coal, as far as it is delivered by rail or 
inland navigation, and it will be valued at the German internal 
price in accordance with Paragraph 6 (A), Annex V., Part VIII., 
of the Treaty of Versailles. In addition, in consideration of the 
admission of the right of the Allies to have coal of specified kind 
and quality delivered to them, a premium of five gold marks, 
payable in cash by the party taking delivery, shall be applied 
to the acquisition of foodstuffs for the German miners. 

3. During the period of the coal deliveries provided for above, 
the stipulations of Paragraphs 2, 3, and 4 of the draft Control 
Protocol of July 11, 1920, shall be put in force at once in the 
modified form of the Annex hereto. (See below.) 

4. An agreement shall be made forthwith between the Allies 
for distribution of the Upper Silesian coal output by a Commission 
on which Germany will be represented. This agreement shall 
be submitted for the approval of the Reparation Commission. 

5. The Commission, on which the Germans shall be repre- 
sented, shall meet forthwith at Essen. Its purpose shall be to 
seek means by which the conditions of life among the miners 
with regard to food and clothing can be improved, with a view 
to the better working of the mines. 

6. The Allied Governments declare their readiness to make 
advances to Germany equal in amount to the difference between 
the price paid under Paragraph 2 above, and the export price 



192 A REVISION OF THE TREATY 

of German coal, f.o.b. in German ports, or the English export 
price, f.o.b. in English ports, whichever may be the lowest, as 
laid down in Paragraph VI. (B) of Annex V., Part VIII., of the 
Treaty of Versailles. These advances shall be made in accordance 
with Articles 235 and 251 of the Treaty of Versailles. They 
shall enjoy an absolute priority over all other Allied claims on 
Germany. The advances shall be made at the end of each month, 
in accordance with the number of tons delivered and the average 
f.o.b. price of coal during the period. Advances on account 
shall be made by the Allies at the end of the first month, without 
waiting for exact figures. 

7. If by November 15, 1920, it is ascertained that the total 
deliveries for August, September, and October 1920 have not 
reached 6,000,000 tons, the Allies will proceed to the occupation 
of a further portion of German territory, either the region of 
the Ruhr or some other. 

Annex 

1. A permanent delegation of the Reparation Commission 
will be set up at Berlin, whose mission will be to satisfy itself 
by the following means that the deliveries of coal to the Allies 
provided for under the Agreement of July 15, 1920, shall be 
carried out : The programmes for the general distribution of 
output, with details of origin and kind, on the one hand, and the 
orders given to ensure deliveries to the Allied Powers on the 
other hand, shall be drawn up by the responsible German 
authorities and submitted by them for the approval of the said 
delegation a reasonable time before their despatch to the executive 
bodies resporjsible for their execution. 

2. No modification in the said programme which may involve 
a reduction in the amount of the deliveries to the Allies shall be 
put into effect without prior approval of the Delegation of the 
Reparation Commission in Berlin. 

3. The Reparation Commission, to which the German Govern- 
ment must periodically report the execution by the competent 
bodies of the orders for deliveries to the Allies, will notify to 



APPENDIX OF DOCUMENTS 193 

the interested Powers any infraction of the principles adopted 
herein. 

II. The Paris Decisions, 1 January 29, 1921 

1. In satisfaction of the obligations laid on her by Articles 
231 and 232 of the Treaty of Versailles, Germany shall pay, 
apart from the restitutions which she must effect in conformity 
with Article 238 and all obligations under the Treaty : 

(1) Fixed annuities, payable in equal instalments at the end 
of each six months, as follows : 

(a) Two annuities of 2 milliard gold marks (May 1, 1921-May 1, 1923). 

(6) Three „ 3 „ „ (May 1, 1923-May 1, 1926). 

(c) Three „ 4 „ „ (May 1, 1926-May 1, 1929). 

(d) Three „ 5 „ „ (May 1, 1929-May 1, 1932). 

(e) Thirty-one „ 6 „ „ (May 1, 1932-May 1, 1963). 

(2) Forty-two annuities, reckoning from May 1, 1921, equiva- 
lent to 12 per cent of the value of Germany's exports, levied on 
the receipts from them and payable in gold two months after 
the conclusion of each six-monthly period. 

To ensure that (2) above shall be completely carried out, 
Germany will accord to the Reparation Commission every 
facility for verifying the amount of the exports and for establish- 
ing the necessary supervision. 

2. The German Government shall deliver forthwith to the 
Reparation Commission Bearer Bonds payable at the due dates 
laid down in Article 1 (1) of the present scheme, and of an amount 
equal to each of the six-monthly instalments payable thereunder. 
Instructions will be given with the object of facilitating, on the 
part of such Powers as may require it, the mobilisation of the 
portion accruing to them under the Agreements which they have 
established amongst themselves. 

3. Germany shall be entitled at any time to anticipate the 
fixed portion of her obligation. 

Payments made by her in anticipation shall be applied in 

1 So far as I am aware, no complete official text of these decisions has 
been published in English. The above is translated from the French text. 

O 



194 A REVISION OF THE TREATY 

reduction of the fixed annuities prescribed in Article 1 (1), dis- 
counted at a rate of 8 per cent up to May 1, 1923, 6 per cent 
from May 1, 1923, to May 1, 1925, and 5 per cent after May 1, 
1925. 

4. Germany shall not embark on any credit operation abroad, 
directly or indirectly, without the approval of the Reparation 
Commission. This restriction applies to the Government of 
the German Empire, the Government of the German States, 
German provincial and municipal authorities, and also to com- 
panies and enterprises controlled by these Governments and 
authorities. 

5. In pursuance of Article 248 of the Treaty of Versailles all 
the assets and revenues of the German Empire and its constituent 
States are held in guarantee of the complete execution by Germany 
of the provisions of this scheme. 

The receipts of the German Customs, by land and sea, in 
particular the receipts of all import and export duties and all 
supplementary taxes, constitute a special pledge for the execution 
of the present Agreement. 

No modification shall be introduced, liable to diminish the 
yield of the Customs, without the Reparation Commission 
approving the Customs Legislation and Regulations of Germany. 

The whole of the receipts of the German Customs shall be 
credited to the account of the German Government, by a Receiver- 
General of the German Customs, nominated by the German 
Government with the assent of the Reparation Commission. 

In the event of Germany failing to meet one of the payments 
laid down in the present scheme : 

(1) The whole or part of the receipts of the German Customs 
shall be taken over from the Receiver- General of the German 
Customs by the Reparation Commission and applied by it to 
the obligations in which Germany has defaulted. In this event 
the Reparation Commissions shall, if it deems necessary, itself 
assume the administration and collection of the Customs receipts. 

(2) The Reparation Commission shall be entitled, in addition, 
to require the German Government to impose such higher tariffs 



APPENDIX OF DOCUMENTS 195 

or to take such other measures to increase its resources as it 
may deem indispensable. 

(3) If this injunction is without effect, the Commission shall be 
entitled to declare the German Government in default and to 
notify this state of affairs to the Governments of the Allied and 
Associated Powers who shall take such measures as they think 
justified. 

(Signed) Henri Jaspar. 

D. Lloyd George. 
Aristide Briand. 
C. Sforza. 
K. Ishii. 
Paris, January 29, 1921. 



III. Claims submitted to the Reparation Commission by 
the various allied nations, as published by the 
Commission, 1 February 23, 1921 

France 

I. — Damage to Property (Reconstitution Values) 

Frs. (Paper) 

Industrial damages 38,882,521,479 

Damage to buildings (propriete bdtie) .... 36,892,500,000 

Damage to furniture and fittings (dommages mobiliers) 25,119,500,000 

Damage to land (propriete non bdtie) .... 21,671,546,225 

Damage to State property 1,958,217,193 

Damage to public works 2,583,299,425 

Other damages 2,359,865,000 

Shipping losses 5,009,618,722 

Damages suffered in Algeria and colonies . . . 10,710,000 

Do. abroad 2,094,825,000 

Interest at 5 per cent on the principal (33,000,000,000 
francs, in round figures, between November 11, 
1918, and May 1, 1921, or 30 months), say, in 

roimd figures 4,125,000,000 

1 The Commission published at the same time a warning that it had not 
adopted these claims, but was about to examine them. 



196 



A REVISION OF THE TREATY 



II. — Injuries to Persons 

Frs. (Paper) 

Military pensions 60,045,696,000 

Allowances to families of mobilised men . . . 12,936,956,824 
Pensions accorded to civilian victims of the war and 

their dependants 514,465,000 

Ill-treatment inflicted on civilians and prisoners of war 1,869,230,000 

Assistance given to prisoners of war .... 976,906,000 

Insufficiency of salaries and wages .... 223,123,313 
Exactions by Germany to the detriment of the 

civilian population 1,267,615,939 

Total of the French claims 218,541,596,120 



Geeat Britain 






£ 


Frs. 


Damage to property . 


7,936,456 




Shipping losses .... 


763,000,000 




Losses abroad .... 


24,940,559 




Damage to river and canal 






shipping .... 


4,000,000 




Military pensions 


1,706,800,000 




Allowances to families of 






mobilised men 




7,597,832,086 


Pensions for civilian victims . 


35,915,579 




Ill-treatment inflicted on 






civilians and prisoners 


95,746 




Assistance to prisoners of war 


12,663 




Insufficiency of salaries and 








6,372 





£2,542,070,375 



Frs. 7,597,832,086 



Italy 

Damage to property 

Shipping losses 

Military pensions 

Allowances to families of mobilised men 
Civilian victims of the war and prisoners 

Total . 



Lire 20,933,547,500 

£128,000,000 

Francs 31,041,000,000 

Francs 6,885,130,395 

Lire 12,153,289,000 

Lire 33,086,836,000 

Francs 37,926,130,395 

£128,000,000 



APPENDIX OF DOCUMENTS 



197 



Belgium 

Damage to property (present value) 
Shipping losses (present value) 
Military Pensions .... 
Allowances to families of mobilised 



Civilian victims and prisoners of war 



Total 



Belgian Frcs. 29,773,939,099 

Belgian Frcs. 180,708,250 

French Frcs. 1,637,285,512 

French Frcs. 737,930,484 
Belgian Frcs. 4,295,998,454 



Belgian Frcs. 34,254,645,893 
French Frcs. 2,375,215,996 



The other claims may be summarised as follows : 

Japan . . 297,593,000 yen (shipping losses). 

„ . . 454,063,000 yen (allowances to families of mobilised 

men). 

832,774,000 yen. 
Jugo-Slavia 8,496,091,000 dinars (damage to property). 

,, 19,219,700,112 francs (injuries to persons). 

Rumania . 9,734,015,287 gold francs (property losses). 
„ 9,296,663,076 gold francs (military pensions). 

„ 11,652,009,978 gold francs (civilians and prisoners of war). 



Portugal . 
Greece . 

Brazil . 
Czecho- 
slovakia 



31,099,400,188 gold francs. 

1,944,261 contos (1,574,907 contos for property loss). 

4,992,788,739 gold francs (1,883,181,542 francs for property 

loss). 
£1,216,714 (shipping £1,189,144), plus 598,405 francs. 

6,944,228,296 francs and 5,614,947,990 kroner (war-losses). 
618,204,007 francs and 1,448,169,845 kroner (Bolshevist 

invasion). 



Siam 

Bolivia . 

Peru 

Haiti 

Cuba 

Liberia 

Poland 

European 

Danube 

Commission J 



7,612,432,103 francs and 7,063,117,135 kroner. 
9,179,298 marks, gold, plus 1,169,821 francs. 
£16,000. 

£56,236, plus 107,389 francs. 
$80,000, plus 532,593 francs. 
L,135. 
$,977,135. 
21,913,269,740 francs gold, plus 500,000,000 marks gold. 



ll,834,800 francs gold, 15,048 francs French, and 488,051 lei. 



198 A REVISION OF THE TREATY 

IV. The First Ultimatum of London, March 3, 1921 

The following declaration was delivered to Dr. Simons by 
Mr. Lloyd George, speaking on behalf of the British and Allied 
Governments, by word of mouth : 

" The Allies have been conferring upon the whole position 
and I am now authorised to make this declaration on their 
behalf : 

" The Treaty of Versailles was signed less than two years ago. 
The German Government have already defaulted in respect of 
some of its most important provisions : the delivery for trial 
of the criminals, who have offended against the laws of war, 
disarmament, the payment in cash or in kind of 20,000,000,000 
of gold marks (£1,000,000,000). These are some of the pro- 
visions. The Allies have displayed no harsh insistence upon 
the letter of their bond. They have extended time, they have 
even modified the character of their demands ; but each time 
the German Government failed them. 

" In spite of the Treaty and of the honourable undertaking 
given at Spa, the criminals have not yet been tried, let alone 
punished, although the evidence has been in the hands of the 
German Government for months. Military organisations, some 
of them open, some clandestine, have been allowed to spring 
up all over the country, equipped with arms that ought to have 
been surrendered. If the German Government had shown in 
respect of reparations a sincere desire to help the Allies to repair 
the terrible losses inflicted upon them by the act of aggression 
of which the German Imperialist Government was guilty, we 
should still have been ready as before to make all allowances 
for the legitimate difficulties of Germany. But the proposals 
put forward have reluctantly convinced the Allies either that 
the German Government does not intend to carry out its Treaty 
obligations, or that it has not the strength to insist, in the face 
of selfish and short-sighted opposition, upon the necessary 
sacrifices being made. 

" If that is due to the fact that German opinion will not permit 



APPENDIX OF DOCUMENTS 199 

it, that makes the situation still more serious, and renders it all 
the more necessary that the Allies should bring the leaders of 
public opinion once more face to face with facts. The first 
essential fact for them to realise is this — that the Allies, whilst 
prepared to listen to every reasonable plea arising out of Germany's 
difficulties, cannot allow any further paltering with the Treaty. 

The Ultimatum 

" We have therefore decided — having regard to the infractions 
already committed, to the determination indicated in these 
proposals that Germany means still further to defy and explain 
away the Treaty, and to the challenge issued not merely in these 
proposals but in official statements made in Germany by the 
German Government — that we must act upon the assumption 
that the German Government are not merely in default, but 
deliberately in default ; and unless we hear by Monday that 
Germany is either prepared to accept the Paris decisions or 
to submit proposals which will in other ways be an equally 
satisfactory discharge of her obligations under the Treaty of 
Versailles (subject to the concessions made in the Paris pro- 
posals), we shall, as from that date, take the following course 
under the Treaty of Versailles. 

" The Allies are agreed : 

(1) To occupy the towns of Duisburg, Ruhrort, and Dusseldorf, 

on the right bank of the Rhine. 

(2) To obtain powers from their respective Parliaments 

requiring their nationals to pay a certain proportion 
of all payments due to Germany on German goods 
to their several Governments, such proportion to be 
retained on account of reparations. (This is in respect 
of goods purchased either in this country or in any 
other Allied country from Germany.) 

(3) (a) The amount of the duties collected by the German 

Customs houses on the external frontiers of the occupied 
territories to be paid to the Reparation Commission. 



200 A REVISION OF THE TREATY 

(6) These duties to continue to be levied in accord- 
ance with the German tariff. 

(c) A line of Customs houses to be temporarily 
established on the Rhine and at the boundary of the 
tetes des ponts occupied by the Allied troops ; the tariff 
to be levied on this line, both on the entry and export 
of goods, to be determined by the Allied High Com- 
mission of the Rhine territory in conformity with the 
instructions of the Allied Governments." 



V. The German Counter-proposal, as transmitted to the 
United States Government, April 24, 1921 

The United States Government have, by their Note of April 
22, opened the possibility, in a way which is thankfully acknow- 
ledged, of solving the reparations problem once more by negotia- 
tions ere a solution is effected by coercive measures. The 
German Government appreciates this step in its full importance. 
They have in the following proposals endeavoured to offer that 
which according to their convictions represents the utmost limit 
which Germany's economic resources can bear, even with the 
most favourable developments : 

1. Germany expresses her readiness to acknowledge for 
reparation purposes a total liability of 50 milliard gold marks 
(present value). Germany is also prepared to pay the equivalent 
of this sum in annuities, adapted to her economic capacity up 
to an aggregate of 200 milliard gold marks. Germany proposes 
to mobilise her liability in the following way : 

2. Germany to raise at once an international loan, of which 
amount, rate of interest, and amortisation quota are to be agreed 
on. Germany will participate in this loan, and its terms, in 
order to secure the greatest possible success, will contain special 
concessions, and generally be made as favourable as possible. 
Proceeds of this loan to be placed at the disposal of the Allies. 

3. On the amount of her liability not covered by the inter- 
national loan Germany is prepared to pay interest and amortisa- 



APPENDIX OF DOCUMENTS 201 

tion quota in accordance with her economic capacity. In present 
circumstances she considers the rate of 4 per cent the highest 
possible. 

4. Germany is prepared to let the Powers concerned have the 
benefit of improvements in her economic and financial situation. 
For this purpose the amortisation quota should be made variable. 
In case an improvement should take place, the quota would 
rise, whilst it would correspondingly fall if developments should 
be in the other direction. To regulate such variations an index 
scheme would have to be prepared. 

5. To accelerate the redemption of the balance, Germany is 
ready to assist with all her resources in the reconstruction of the 
devastated territories. She considers reconstruction the most 
pressing part of reparation, because it is the most effective way 
to combat the hatred and misery caused by the war. She is 
prepared to undertake, herself, the rebuilding of townships, 
villages, and hamlets, or to assist in the reconstruction with 
labour, material, and her other resources, in any way the Allies 
may desire. The cost of such labour and material she would 
pay herself. (Full details about this matter have been com- 
municated to the Reparation Commission.) 

6. Apart from any reconstruction work Germany is prepared 
to supply for the same purpose, to States concerned, any other 
materials, and to render them any other services as far as possible 
on a purely commercial basis. 

7. To prove the sincerity of her intention to make reparation 
at once, and in an unmistakable way, Germany is prepared to 
place immediately at the disposal of the Reparation Commission 
the amount of one milliard gold marks in the following manner : 
First, 150,000,000 gold marks in gold, silver, and foreign bills ; 
secondly, 850,000,000 gold marks in Treasury bills, to be redeemed 
within a period not exceeding three months by foreign bills and 
other foreign values. 

8. Germany is further prepared, if the United States and 
the Allies should so desire, to assume part of the indebtedness 
of the Allies to the United States as far as her economic capacity 
will allow her. 



202 A REVISION OF THE TREATY 

9. In respect of the method by which the German expenditures 
for reparations purposes should be credited against her total 
liability, Germany proposes that prices and values should be 
fixed by a commission of experts. 

10. Germany is prepared to secure subscribers for the loan in 
every possible way by assigning to them public properties or 
public income in a way to be arranged for. 

11. By the acceptance of these proposals all other German 
liabilities on reparation account are cancelled, and German 
private property abroad released. 

12. Germany considers that her proposals can only be realised 
if the system of sanctions is done away with at once ; if the 
present basis of German production is not further diminished ; 
and if the German nation is again admitted to the world's com- 
merce and freed of all unproductive expenditure. 

These proposals testify to the German firm will to make good 
damage caused by the war up to the limit of her economic capacity. 
The amounts offered, as well as mode of payment, depend on 
this capacity. As far as differences of opinion as to this capacity 
exist, the German Government recommend that they be ex- 
amined by a commission of recognised experts acceptable to all 
the interested Governments. She declares herself ready in 
advance to accept as binding any decision come to by it. Should 
the United States Government consider negotiations could be 
facilitated by giving the proposals another form, the German 
Government would be thankful if their attention were drawn 
to points in which the United States Government consider an 
alteration desirable. The German Government would also 
readily receive any other proposals the United States Government 
might feel inclined to make. 

The German Government is too firmly convinced that the 
peace and welfare of the world depend on a prompt, just, and 
fair solution of the reparation problem not to do everything in 
their power to put the United States in a position which enables 
them to bring the matter to the attention of the Allied Govern- 
ments. — Berlin, April 24, 1921. 



APPENDIX OF DOCUMENTS 203 

VI. The Assessment announced by the Reparation 
Commission, April 30, 1921 

The Reparation Commission, in discharge of the provisions 
of Article 233 of the Treaty of Versailles, has reached a unanimous 
decision to fix at 132 milliard gold marks the total of the damages 
for which reparation is due by Germany under Article 232 (2) 
and Part VIII., Annex I. of the said Treaty. 

In fixing this figure the Commission have made the necessary 
deductions from the total of damages to cover restitutions 
effected or to be effected in discharge of Article 238, so that no 
credit will be due to Germany from the fact of these restitutions. 

The Commission have not included in the above figure the 
sum corresponding to the obligation, which falls on Germany as 
an addition in virtue of Article 232 (3), " to make reimbursement 
of all sums which Belgium has borrowed from the Allied and 
Associated Governments up to November 11, 1918, together with 
interest at the rate of 5 per cent per annum on such sums." 

VII. The Second Ultimatum op London, May 5, 1921 

The Allied Powers, taking note of the fact that, in spite of 
the successive concessions made by the Allies since the signature 
of the Treaty of Versailles, and in spite of the warnings and 
sanctions agreed upon at Spa and at Paris, as well as of the 
sanctions announced in London and since applied, the German 
Government is still in default in the fulfilment of the obligations 
incumbent upon it under the terms of the Treaty of Versailles 
as regards (1) disarmament ; (2) the payment due on May 1, 
1921, under Article 235 of the Treaty, which the Reparation 
Commission has already called upon it to make at this date ; 
(3) the trial of the war criminals as further provided for by the 
Allied Notes of February 13 and May 7, 1920 ; and (4) certain 
other important respects, notably those which arise under Articles 
264 to 267, 269, 273, 321, 322, and 327 of the Treaty, decide :— 

(a) To proceed forthwith with such preliminary measures as 
may be required for the occupation of the Ruhr Valley 



204 A REVISION OF THE TREATY 

by the Allied Forces on the Rhine in the contingency 
provided for in Paragraph (d) of this Note. 
(6) In accordance with Article 233 of the Treaty to invite 
the Reparation Commission to prescribe to the German 
Government without delay the time and manner for 
securing and discharging the entire obligation incumbent 
upon that Government, and to announce their decision 
on this point to the German Government at latest on 
May 6. 

(c) To call upon the German Government categorically to 

declare within a period of six days from the receipt of 
the above decision its resolve (1) to carry out without 
reserve or condition their obligations as defined by 
the Reparation Commission ; (2) to accept without 
reserve or condition the guarantees in respect of those 
obligations prescribed by the Reparation Commission ; 
(3) to carry out without reserve or delay the measures 
of military, naval, and aerial disarmament notified to 
the German Government by the Allied Powers in their 
Note of January 29, 1921, those overdue being com- 
pleted at once, and the remainder by the prescribed 
dates ; (4) to carry out without reserve or delay the 
trial of the war criminals and the other unfulfilled 
portions of the Treaty referred to in the first paragraph 
of this Note. 

(d) Failing fulfilment by the German Government of the 

above conditions by May 12, to proceed to the occupa- 
tion of the Valley of the Ruhr and to take all other 
military and naval measures that may be required. 
Such occupation will continue so long as Germany fails 
to comply with the conditions summarised in Para- 
graph (c). 

(Signed) Henri Jaspar. 

A. Briand. 

D. Lloyd George 

C. Sforza. 

Hayashi. 



APPENDIX OF DOCUMENTS 205 

Schedule of Payments prescribing the Time and Manner for securing 
and discharging the entire Obligation of Germany for Reparation 
under Articles 231, 232, and 233 of the Treaty of Versailles. 

The Separation Commission has, in accordance with Article 
233 of the Treaty of Versailles, fixed the time and manner for 
securing and discharging the entire obligation of Germany for 
Reparation under Articles 231, 232, and 233 of the Treaty as 
follows : — 

This determination is without prejudice to the duty of Germany 
to make restitution under Article 238, or to other obligations 
under the Treaty. 

1. Germany will perform in the manner laid down in this 
Schedule her obligations to pay the total fixed in accordance 
with Articles 231, 232, and 233 of the Treaty of Versailles by the 
Commission— viz. 132 milliards of gold marks (£6,600,000,000) 
less (a) the amount already paid on account of Reparation ; (6) 
sums which may from time to time be credited to Germany in 
respect of State properties in ceded territory, etc. ; and (c) any 
sums received from other enemy or ex-enemy Powers in respect 
of which the Commission may decide that credits should be given 
to Germany, plus the amount of the Belgian debt to the Allies, 
the amounts of these deductions and additions to be determined 
later by the Commission. 

2. Germany shall create and deliver to the Commission in 
substitution for bonds already delivered or deliverable under 
Paragraph 12 (c) of Annex 2 of Part VIII. (Reparation) of the 
Treaty of Versailles the bonds hereinafter described. 

(A) Bonds for an amount of 12 milliard gold marks 
(£600,000,000). These bonds shall be created and delivered at 
latest on July 1, 1921. There shall be an annual payment from 
funds to be provided by Germany as prescribed in this agree- 
ment, in each year from May 1, 1921, equal in amount to 6 per 
cent of the nominal value of the issued bonds, out of which 
there shall be paid interest at 5 per cent per annum, payable 
half-yearly on the bonds outstanding at any time, and the 
balance to sinking fund for the redemption of the bonds by 



206 A REVISION OF THE TREATY 

annual drawings at par. These bonds are hereinafter referred to 
as bonds of Series (A). 

(B) Bonds for a further amount of 38 milliard gold marks 
(£1,900,000,000). These bonds shall be created and delivered 
at the latest on November 1, 1921. There shall be an annual 
payment from funds to be provided by Germany as prescribed 
in this agreement in each year from November 1, 1921, equal 
in amount to 6 per cent of the nominal value of the issued bonds, 
out of which there shall be paid interest at 5 per cent per annum, 
payable half-yearly on the bonds outstanding at any time and 
the balance to sinking fund for the redemption of the bonds 
by annual drawings at par. These bonds are hereinafter referred 
to as bonds of Series (B). 

(C) Bonds for 82 milliards of gold marks (£4,100,000,000), 
subject to such subsequent adjustment by creation or cancella- 
tion of bonds as may be required under Paragraph (1). These 
bonds shall be created and delivered to the Reparation Com- 
mission, without coupons attached, at latest on November 1, 
1921 ; they shall be issued by the Commission as and when it 
is satisfied that the payments which Germany undertakes to 
make in pursuance of this agreement are sufficient to provide 
for the payment of interest and sinking fund on such bonds. 
There shall be an annual payment from funds to be provided 
by Germany as prescribed in this agreement in each year from 
the date of issue by the Reparation Commission equal in amount 
to 6 per cent of the nominal value of the issued bonds, out of 
which shall be paid interest at 5 per cent per annum, payable 
half-yearly on the bonds outstanding at any time, and the 
balance to sinking fund for the redemption of the bonds by 
annual drawings at par. The German Government shall supply 
to the Commission coupons for such bonds as and when issued 
by the Commission. These bonds are hereinafter referred to as 
bonds of Series (C). 

3. The bonds provided for in Article 2 shall be signed German 
Government bearer bonds, in such form and in such denomina- 
tions as the Reparation Commission shall prescribe for the 



APPENDIX OF DOCUMENTS 207 

purpose of making them marketable, and shall be free of all 
German taxes and charges of every description present or future. 

Subject to the provisions of Articles 248 and 251 of the Treaty 
of Versailles these bonds shall be secured on the whole of the 
assets and revenues of the German Empire and the German 
States, and in particular on the specific assets and revenues 
specified in Article 7 of the agreement. The service of the bonds 
of Series (A), (B), and (C) shall be a first, second, and third charge 
respectively on the said assets and revenues and shall be met 
by the payments to be made by Germany under this Schedule. 

4. Germany shall pay in each year until the redemption of 
the bonds provided for in Article 2 by means of the sinking funds 
attached thereto — 

(1) A sum of two milliard gold marks (£100,000,000). 

(2) (a) A sum equivalent to 25 per cent of the value of her 

exports in each period of 12 months starting from 
May 1, 1921, as determined by the Commission ; or 
(b) Alternatively an equivalent amount as fixed in 
accordance with any other index proposed by Germany 
and accepted by the Commission. 

(3) A further sum equivalent to 1 per cent of the value of 

her exports as above defined, or alternatively an equiva- 
lent amount fixed as provided in (b) above. 

Provided always that when Germany shall have discharged 
all her obligations under this Schedule, other than her liability 
in respect of outstanding bonds, the amount to be paid in each 
year under this paragraph shall be reduced to the amount re- 
quired in that year to meet the interest and sinking fund on the 
bonds then outstanding. 

Subject to the provisions of Article 5, the payments to be 
made in respect of Paragraph (1) above shall be made quarterly 
before the end of each quarter, i.e. before January 15, April 15, 
July 15, and October 15 each year, and the payments in respect 
of Paragraphs (2) and (3) above shall be made quarterly, November 
15, February 15, May 15, August 15, and calculated on the basis 



2 o8 A REVISION OF THE TREATY 

of the exports in the last quarter but one preceding that quarter, 
the first payment to be made November 15, 1921. 

5. Germany will pay within 25 days from this notification 
one milliard gold marks (£50,000,000) in gold or approved foreign 
bills or in drafts at three months on the German Treasury, 
endorsed by approved German banks and payable in London, 
Paris, New York, or any other place designated by the Separa- 
tion Commission. These payments will be treated as the first 
two quarterly instalments of the payments provided for in 
compliance with Article 4 (1). 

6. The Commission will within 25 days from this notifica- 
tion, in accordance with Paragraph 12 (d), Annex II. of the 
Treaty as amended, establish the special Sub-Commission, to 
be called the Committee of Guarantees. The Committee of 
Guarantees will consist of representatives of the Allied Powers 
now represented on the Preparation Commission, including a 
representative of the United States of America, in the event of 
that Government desiring to make the appointment. 

The Committee shall co-opt not more than three representatives 
of nationals of other Powers whenever it shall appear to the 
Commission that a sufficient portion of the bonds to be issued 
under this agreement is held by nationals of such Powers to 
justify their representation on the Committee of Guarantees. 

7. The Committee of Guarantees is charged with the duty 
of securing the application of Articles 241 and 248 of the Treaty 
of Versailles. 

It shall supervise the application to the service of the bonds 
provided for in Article 2 of the funds assigned as security for 
the payments to be made by Germany under Paragraph 4. The 
funds to be so assigned shall be — 

(a) The proceeds of all German maritime and land customs 
and duties, and in particular the proceeds of all import 
and export duties. 

(6) The proceeds of the levy of 25 per cent on the value of 
all exports from Germany, except those exports upon 



APPENDIX OF DOCUMENTS 209 

which a levy of not less than 25 per cent is applied 
under the legislation referred to in Article 9. 
(c) The proceeds of such direct or indirect taxes or any other 
funds as may be proposed by the German Government 
and accepted by the Committee of Guarantees in 
addition to or in substitution for the funds specified 
in (a) or (b) above. 

The assigned funds shall be paid to accounts to be opened 
in the name of the Committee and supervised by it, in gold or 
in foreign currency approved by the Committee. The equivalent 
of the 25 per cent levy referred to in Paragraph (b) shall be 
paid in German currency by the German Government to the 
exporter. 

The German Government shall notify to the Committee of 
Guarantees any proposed action which may tend to diminish 
the proceeds of any of the assigned funds, and shall, if the Com- 
mittee demand it, substitute some other approved funds. 

The Committee of Guarantees shall be charged further with 
the duty of conducting on behalf of the Commission the examina- 
tion provided for in Paragraph 12 (b) of Annex 2 to Part VIII. 
of the Treaty of Versailles, and of verifying on behalf of the said 
Commission, and if necessary of correcting, the amount declared 
by the German Government as the value of German exports 
for the purpose of the calculation of the sum payable in each 
year under Article 4 (2) and the amounts of the funds assigned 
under this Article to the service of the bonds. The Committee 
shall be entitled to take such measures as it may deem necessary 
for the proper discharge of its duties. 

The Committee of Guarantees is not authorised to interfere 
in German administration. 

8. Germany shall on demand, subject to the prior approval 
of the Commission, provide such material and labour as any of 
the Allied Powers may require towards the restoration of the 
devastated areas of that Power, or to enable any Allied Power 
to proceed with the restoration or development of its industrial 
or economic life. The value of such material and labour shall 

P 



210 A REVISION OF THE TREATY 

be determined by a valuer appointed by Germany and a valuer 
appointed by the Power concerned, and, in default of agreement, 
by a referee nominated by the Commission. This provision as 
to valuation does not apply to deliveries under Annexes III., IV., 
V., and VI. to Part VIII. of the Treaty. 

9. Germany shall take every necessary measure of legislative 
and administrative action to facilitate the operation of the 
German Eeparation (Recovery) Act, 1921, in force in the United 
Kingdom, and of any similar legislation enacted by any Allied 
Power, so long as such legislation remains in force. Payments 
effected by the operation of such legislation shall be credited 
to Germany on account of the payment to be made by her under 
Article 4 (2). The equivalent in German currency shall be 
paid by the German Government to the exporter. 

10. Payment for all services rendered, all deliveries in kind, 
and all receipts under Article 9 shall be made to the Reparation 
Commission by the Allied Power receiving the same in cash 
or current coupons within one month of the receipt thereof, 
and shall be credited to Germany on account of the payments 
to be made by her under Article 4. 

11. The sum payable under Article 4 (3) and the surplus 
receipts by the Commission under Article 4 (1) and (2) in each 
year, not required for the payment of interest and sinking fund 
on bonds outstanding in that year, shall be accumulated and 
applied so far as they will extend, at such times as the Commission 
may think fit, by the Commission in paying simple interest not 
exceeding 1\ per cent per annum from May 1, 1921, to May 1, 
1926, and thereafter at a rate not exceeding 5 per cent on the 
balance of the debt not covered by the bonds then issued. No 
interest thereon shall be payable otherwise. 

12. The present Schedule does not modify the provisions 
securing the execution of the Treaty of Versailles, which are 
applicable to the stipulations of the present Schedule. 



APPENDIX OF DOCUMENTS 211 

VIII. The Wiesbaden Agreement, October 6, 1921 

This Agreement, signed by M. Loucheur and Herr Ratkenau 
at Wiesbaden on October 6, 1921, is a lengthy document, 
consisting of a Protocol, Memorandum, and Annex. The effective 
clauses are to be found mainly in the Annex. The full text has 
been published in a British White Paper [Cmd. 1547]. This 
White Paper also contains (1) an explanatory Memorandum, 
(2) the Decision of the Reparation Commission, and (3) a Report 
from Sir John Bradbury to the British Treasury. Extracts from 
these three documents are given below. 

1. Explanatory Memorandum 

In order to understand the arrangements proposed by the 
Wiesbaden Agreement, it is necessary to bear in mind certain 
provisions of the Treaty of Versailles, the application of which is 
affected by it. 

The Treaty itself provides in the Reparation Chapter, Part 
VIII., and in some of its Annexes, for the partial liquidation of 
Germany's reparation indebtedness by deliveries in kind. The 
important passages in this connection are Paragraph 19 of Annex 
II. and Annex IV., which together make extensive provision for 
the delivery, through the Reparation Commission, to the Allied 
and Associated Powers of machinery, equipment, tools, recon- 
struction material, and, in general, all such material and labour 
as is necessary to enable any Allied Power to proceed with the 
restoration or development of its industrial or economic life. 

Germany's obligation being stated in terms of gold and not 
in terms of commodities, provision has necessarily been made 
in all cases for crediting Germany, from time to time, with the 
fair value, as assessed by the Reparation Commission, of such 
deliveries. Moreover, since the proportions received by the 
respective Powers in kind need not necessarily correspond 
exactly with their respective shares in Germany's reparation 
payments, as determined by Inter-Allied agreement, provision 
is further necessarily made in the Treaty to render each Power 



212 A REVISION OF THE TREATY 

accountable not only to Germany, but to the Reparation Com- 
mission, for the value of these deliveries. Thus, on the one hand, 
the Treaty stipulates as between the Allies and Germany that 
the value of services under the Annexes shall be credited towards 
the liquidation of Germany's general obligation, and the Schedule 
of Payments assigns the value of Annex deliveries to the service 
of the bonds handed over by Germany as security for her debt. 
On the other hand, the Treaty provides that for the purpose of 
equitable distribution as between the Allies, the value of Annex 
deliveries shall be reckoned in the same manner as cash payments 
effected in the year, and the Schedule of Payments stipulates 
that the value of the deliveries received by each Power shall, 
within one month of the date of delivery, be paid over to the 
Reparation Commission, either in cash or in current coupons. 

Further, the Treaty imposes upon the Reparation Commission 
not only the duty of fixing prices, but also of determining the 
capacity of Germany to deliver goods demanded by any of the 
Allies, and, by implication, of deciding between the competing 
demands which are made upon that capacity by the Allies 
themselves. 

The Wiesbaden Agreement provides for the delivery by a 
German company 1 to French " sinistres " of "all plant and 
materials compatible with the productive capacity of Germany, 
her supply of raw materials and her domestic requirements," 
that is to say, of the articles and materials which can be demanded 
under Annex IV. and Paragraph 19 of Annex II., which are, by the 
terms of the Agreement, in so far as France is concerned, virtually 
suspended, the obligations of Germany to deliver to France under 
the other Annexes remaining unaffected. 

Any question as to the capacity of Germany to satisfy the 

1 The arrangement under which a German private company is to be 
created to deal directly with the orders without the intervention of the 
French and German Governments is intended to obviate the delays which 
experience has shown to be inseparable from the employment of the present 
machinery. It does not appear to have any important bearing on the general 
financial situation, since the deliveries will clearly have to be financed by 
the German Government and will ultimately be paid for by means of a 
reparation credit in account with the German Government. 



APPENDIX OF DOCUMENTS 213 

requirement of France, and all questions of price, are to be 
settled by a Commission of three members, one French and one 
German, and a third selected by common agreement or nominated 
by the Swiss President. 

The aggregate value of the deliveries to be made under the 
Agreement, and of the deliveries to be made under Annexes III., 
V. and VI. (hereafter, for the sake of brevity, called the " Annex 
deliveries ") in the period expiring on the 1st May 1926, is fixed 
at a maximum of 7 milliard gold marks. 

In regard to the Annex deliveries the Agreement in no way 
modifies the Treaty provisions under which Germany is credited 
and France debited forthwith with the value, but special pro- 
visions, which are financially the essential part of the Agreement, 
are made for bringing to reparation account the value of the 
Agreement deliveries. These special provisions are designed to 
secure that Germany shall only be credited on reparation account 
at the time of delivery with a certain proportion of them, and 
that deliveries not thus accounted for, which may be called 
" excess deliveries," shall be liquidated over a period of years 
beginning at the earliest on 1st May 1926. The provisions 
themselves are somewhat intricate, comprising, as they do, a 
series of interacting limitations, and they require some elucidation. 

(1) In no case is credit to be given to Germany in any one year 

for Annex and Agreement deliveries together to an 
amount exceeding one milliard gold marks. 

(2) In no case is credit to be given to Germany in any one 

year for more than 45 per cent of the value of the 
Agreement deliveries or for more than 35 per cent if 
the value of the Agreement deliveries exceeds one 
milliard gold marks. 

The effect of the above is to prescribe that 55 per cent (or, if 
the Agreement operates successfully, 65 per cent) of the value 
of the Agreement deliveries as a minimum will be the object of 
deferred payment by instalments. If the Agreement deliveries 
reached really high figures, the operation of the milliard limitation 
would make the carry forward much more than 65 per cent. 



214 A REVISION OF THE TREATY 

The excess deliveries are to be liquidated with interest at 5 
per cent per annum in 10 equal annual instalments as from 1st 
May 1926, subject to certain conditions : — 

(1) France shall in no case be debited in one year for Agree- 

ment deliveries with an amount which, when added to the 
value of her Annex deliveries in that year, would make her 
responsible for more than her share (52 per cent) of the 
total reparation payments made by Germany in that year. 

(2) Agreement deliveries continue after 1st May 1926, with 

the same provisions for deferred payment. If in any 
year between May 1926 and May 1936 the amount (not 
exceeding 35 or 45 per cent) of the value of that year's 
Agreement deliveries to be credited to Germany, to- 
gether with the annual instalment to repay the debt 
incurred in respect of the period ending 1st May 1926, 
exceeds one milliard, the excess is to be carried forward 
from year to year until a year is reached in which no 
such excess is created by the payment. But in no case 
shall the amount credited, even if it is less than one 
milliard gold marks, exceed the limit laid down by the 
preceding condition. 

(3) Any balance with which Germany has not been credited 

on 1st May 1936 is to be credited to her with compound 
interest at 5 per cent in four half-yearly payments on 
30th June and 31st December 1936 and 30th June and 
31st December 1937. But, again, these half-yearly 
payments shall not be made if the effect of making them 
would be to exceed the limit laid down in Condition 1 
above. 

(4) Agreement deliveries continue indefinitely after 1st May 

1936, with power, however, to Germany to arrest them 
whenever the execution of them would result in France 
owing more than 52 per cent of Germany's annual 
reparation payment in respect of Annex deliveries, 
deferred payments already matured, and the 35 or 45 
per cent of current deliveries. 



APPENDIX OF DOCUMENTS 215 

From the above it is to be noted that, while there is a limitation 
for the first five years of the amount of Agreement deliveries 
which can be demanded, there is — 

(1) No point at which the right of France to demand these 

special deliveries automatically terminates. 

(2) No final limitation upon the value of the deliveries which 

can be demanded by France during the lifetime of the 
Agreement. 

(3) No definitely prescribed period within which France's debt 

to Germany and to the other partners in reparation shall 
be liquidated. 

It remains necessary to draw attention to one subsidiary 
point of a financial character under the Schedule of Payments. 
Part of Germany's annual reparation liability consists of the 
payment of 26 per cent of the value of German exports in each 
period of twelve months, and part of the security for the pay- 
ment consists of the proceeds of a levy of 25 per cent on the 
value of all German exports. The French Government has 
undertaken to support a request, to be submitted by the German 
Government to the Reparation Commission, for the inclusion 
in the exports which form the basis of these calculations of that 
part only of the value of the deliveries made under the Agreement 
which is credited to Germany and debited to France during any 
particular year. 

If it can be assumed that any part of the special deliveries to 
be made under the Agreement would, in the absence of the Agree- 
ment, have been diverted to Germany's ordinary external trade, 
then the concession desired will have the effect of diminishing 
the annual payments made by Germany for the benefit of the 
Allies as a whole. 

2. Decision of the Reparation Commission on October 20, 1921, after 
considering the Franco-German Agreement of October 6, 1921. 

The French Government, having submitted to the Reparation 
Commission in accordance with Paragraph 3 of the Memorandum 



216 A REVISION OF THE TREATY 

thereto attached the Agreement between the representatives 
of the French and German Governments signed at Wiesbaden 
on the 6th instant, the Commission has come to the following 
decision : — 

(1) It entirely approves the general principles underlying the 

Agreement whereby special arrangements are proposed 
for enabling Germany to liquidate the largest possible 
proportion of her reparation obligations in the form of 
goods and services, more especially with a view to the 
speedier restoration of the Devastated Regions. 

(2) At the same time, it considers that the Agreement involves 

certain departures from the provisions of Part VIII. of 
the Treaty of Versailles, notably Article 237, Paragraphs 
12 and 19 of Annex II. and Paragraph 5 of Annex IV. 

(3) As the Commission has no power to authorise such 

departures, it decides to refer the question to the 
Governments represented on the Commission, with a 
copy of the Memorandum and its Annex, recommending 
a favourable examination of them. 

(4) The Commission recommends that reasonable facilities for 

deferred payment in respect of the exceptional volume 
which, if the arrangements are successful, the deliveries 
in kind to France are likely to assume during the next 
few years, should be accorded to France, subject to any 
safeguards which the Allied Governments may regard 
as necessary to protect their respective interests. 



3. Concluding Recommendations of Sir John Bradbury's Report 
to the British Government (October 26, 1921) 

The safeguards which are envisaged as necessary by my Italian 
and Belgian colleagues on the Reparation Commission and myself, 
and for which we presume that our respective Governments will 
desire to stipulate are — 



APPENDIX OF DOCUMENTS 217 

(1) That a limit of time should be laid down after the expiration 

of which no new deferment of debit should be permitted 
and the liquidation of the existing deferred debits should 
commence to be made by regular annual instalments. 

The precise length of this period should be determined upon an 
estimate of the time necessary to carry out the main work of 
reconstruction, regard being had to the time required by 
Germany to effect the necessary supplies. In view of the delays 
which are inevitable in regard to operations of the magnitude of 
those contemplated, the prescribed period might be reasonably 
somewhat longer than the four and a half years' initial period 
under the agreement, but it should not exceed seven years. 

(2) That in no circumstances should the aggregate amount 

for which debit against France for the time being stands 
deferred be allowed to exceed a prescribed amount, say, 
4 milliard gold marks. 

(3) That a provision should be inserted for the payment by 

France to the general reparation account from time to 
time (within the limits of the deferred debits for the 
time being outstanding) of any amounts which may be 
necessary to secure that the other Allies shall receive 
their proper proportions of the amounts due from 
Germany under the Schedule of Payments. 

Subject to the introduction of these safeguards, to which it 
would not appear that legitimate exception could be taken, the 
arrangements contemplated by the agreement may be expected 
to accelerate the solution of the Reparation problem on practical 
lines in a manner advantageous to France without prejudicing 
the interests of other Powers, and it is upon this ground that the 
Reparation Commission has unanimously recommended them 
for favourable examination by the Allied Governments. 

If the Allied Governments approve the general scheme, subject 
to whatever safeguards they may decide to be necessary, there 
will remain certain subsidiary points for the Reparation Com- 
mission to consider — amongst other : — 



218 A REVISION OF THE TREATY 

(1) The proposed omission of the excess deliveries from the 

index figure determining the annual liability under the 
Schedule of Payments, until such time as these deliveries 
are finally brought to account for reparation purposes. 

(2) The special arrangements for substitution in respect of 

articles of which France is entitled to restitution by 
identity, involving in certain cases money payments ; 
and 

(3) The special arrangements in regard to the delivery of coal 

and the prices to be credited and debited, which in 
several particulars affect the interest of other Powers. 



[Tables 



APPENDIX OF DOCUMENTS 



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A REVISION OF THE TREATY 



(B) Advances by the British Government to other Governments 
{as on March 31, 1921) 

Allied Governments 1 — 

France £557,039,507 6 8 

Russia 561,402,234 18 5 

Italy 476,850,000 

Belgium 103,421,192 8 9 

Serbia 22,247,376 12 5 

Montenegro .... 204,755 19 9 

Rumania 21,393,662 2 8 

Portugal 18,575,000 

Greece 22,577,978 9 7 

Belgian Congo .... 3,550,300 



Loans for Relief — 

Austria 

Rumania 

Serb-Croat-Slovene Kingdom . 

Poland 

Czecho-Slovakia 

Esthonia 

Lithuania 

Latvia 

Hungary 

Armenia 

Inter- Allied Commission on the 
Danube 

Other Loans (Stores, etc.) — 
Czecho-Slovakia 
Armenia 



£1,787,262,007 18 3 



£8,605,134 9 

1,294,726 

1,839,167 3 

4,137,040 10 

417,392 3 

241,681 14 

16,811 12 

20,169 1 

79,997 15 10 

77,613 17 2 



6,868 17 6 



£2,000,000 
829,634 



16,736,603 6 2 



2,829,634 9 3 



Total £1,806,828,245 13 8 



1 These accounts include interest, except in the case of Belgium and Serbia, from 
whom interest has not been charged, and in the case of Russia, where no interest has 
been entered up since January 1918. 



INDEX 



Allied debts, 158 f., 171, 180 f,, 219 
Armistice negotiations, 136, 138 f. 
Army of Occupation, expenses of, 

77 %., 124, 130, 191 
Austria, 120, 177, 178 

Balfour, A. J., 138 n. 

Baruch, 66 %., 98%., 142, 144, 145, 

148, 149 n. 
Belgian priority, 126, 130, 177, 190 

Reparation claims, 114, 197 
Boulogne Conference, 15 
Boyden, 104, 121 
Bradbury, Sir John, 85, 88, 119 »., 

120, 216 
Brenier, 101, 102, 109 n. 
Briand, 20, 21, 23, 36, 63, 105 
British Reparation Claims, 115, 196 
Brockdorff-Rantzau, 25 
Brussels Conference (Experts), 19 
Brussels Conference (League of 

Nations), 79 
Brussels Conference (Premiers), 16 
Bulgaria, 120, 177 

Clemenceau, 78 %., 100, 139, 140 
Coal, 40 f., 68, 90 
Cunliffe, Lord, 66, 145 
Curzon, Lord, 52 n. 

D'Abernon, Lord, 27 
Decisions of London, 87 
Disarmament of Germany, 12-15 



Dominion Prime Ministers' Con- 
ference, 129 
Doumer, 103, 132 
Dubois, 102, 106 n., 119 n. 
Dulles, John Foster, 146 

East Prussia (plebiscite), 8 

Economic Consequences of the Peace, 
3, 35, 40, 46, 50 n. , 65, 66, 68 %. , 
99, 100, 105, 110, 115, 117 51., 
127 n., 134, 136 n., 155, 162 

Elsas, Dr. Moritz, 81, 82, 84 n. 

Exports, German, 72 f., 91, 155 f. 

Financial Agreement of Paris (Aug. 

1921), 126, 131 f. 
Foch, Marshal, 27, 29, 52, 138 n. 
Forgeot, 63%. 
Fournier-Sarloveze, 107%. 
Frankfurt, Occupation of, 12, 51 
French Reparation Claim, 100 f. , 

108 f., 195 

George, Lloyd, 1, 14, 18, 21, 23, 26, 

30, 36, 78%., 112, 128%., 129, 

139, 144, 166, 198 
German Budget, 74 f. 
German Counter-proposal (March 

1921), 25 
German Counter- proposal (April 

1921), 32 f., 200 f. 
German individual income, 79 f. 
German property in United States, 

71, 133 



A REVISION OF THE TREATY 



Gladstone, 4 

Guarantees, Committee of, 62 f., 
208 f. 

Haig, Sir Douglas, 138 n. 
Harding, President, 160 
Heichen, Dr. Arthur, 80 
Helfferich, 81, 83 
History of the Peace Conference of 

Paris, 137 n., 142 n., 149 n. 
House, Col., 138 n. 
Hughes, W. M., 17, 145 
Hungary, 179 
Hymans, 139, 140 
Hythe Conference, 15 

Invasion of Germany, 27, 28, 31 
Italian Reparation Claims, 117, 196 
Italy, 177 

Kaiser, trial of, 11 

Kapp, "Putsch," 12 

Klotz, 21, 66, 101, 102, 137, 140 f. 

Lamont, J. W., 98 n., 150, 151 n. 

Lansburgli, Dr. Albert, 80 

Law, Bonar, 140 

League of Nations, 9, 55, 175 

Leipzig trials, 12 

Levy, Raphael-Georges, 109 n. 

Leygues, 18, 20 

Lignite, 49 

London Conference I., 24, 29 

London Conference II., 36 

London Settlement, 58 f., 66, 74, 

77 n, 121, 176 f., 205 
London Ultimatum I., 26, 31, 198 
London Ultimatum II., 12, 15, 

27 n., 37, 39, 52, 203 f. 
Loucheur, 27, 85, 87, 101, 102, 

103 n., 109, 111 
Loucheur - Rathenau Agreement ; 

vide Wiesbaden Agreement 

Mark Exchange, 75, 92 f. 
Mercantile Marine of Germany, 13, 

127 
"Mermeix," 138%., 139 n. 
Millerand, 14, 17 



Newspaper opinion, 5 
Nitti, 14 

Occupation, Army of, 77 n., 124, 130 
Occupation of Germany, 175, 199, 

203 
Occupation of Germany, legality of, 

28, 37, 5 If. 
Orlando, 139 

Paris decisions, 15, 22, 28, 30, 35, 

52, 193 
Payment in kind, 89 f., 157 
Pensions, 116, 136 f., 173 
Poincare, 21, 101, 119, 120 
Poland, 179 f. 
Poland's coal, 47 
Private opinion, 5 

Rathenau, 85, 87 

Reparation Claims, 117 f. 195 f. 

Reparation and International Trade, 

152 f. 
Reparation Bill, 34, 98 f., 173 
Reparation Bonds, 53 f., 93, 193, 205 
Reparation Commission, 18, 28, 30, 

Sin., 40, 42, 53, 55, 60 n., 62, 

66, 85, 98, 102, 110, 117, 145, 

205 f., 215 
Reparation Commission, Assessment 

of, 23, 118 f., 203 
Reparation, Estimates of, 34, 66 
Reparation Receipts, division of, 

128 f., 189 
Restitution, 13, 139 
Revision of Treaty, 172 f. 
Ruhr, Occupation of, 31, 36, 52, 204 
Ruhr riots, 12 

San Remo Conference, 12, 14 
Sanctions, 28, 32, 52 n. 
Schlesvig (plebiscite), 8 
Simons, 24, 25, 28, 34 n., 198 
Smuts, General, 149 
Sonino, 139, 140 

Spa Coal Agreement, 41 f., 94, 124, 
127, 191 



INDEX 



223 



Spa Conference, 15, 16, 40, 128, 189 
Sumner, Lord, 145 

Tardieu, 21, 23, 54, 66, 98m., 99 m., 
101 «., 106 n., 107, 111, 112, 
128, 137, 138, 139 n., 140 n., 
141, 142 

The Times, 14, 16, 18, 23, 28, 49?!,., 
92, 101, 109 n. 

United States, 32, 33, 71 n., 132 
United States and Inter-Allied Debts, 
158 f., 171, 181 f., 219 



United States, Treaty rights of, to- 
wards Germany, 71, 120, 130, 132 

Upper Silesia, 8, 26, 28, 34, 46, 
49 

Westphalian riots, 12 

Wierzlicki, 48 

Wiesbaden Agreement, 59, 85 f., 

175, 211 f. 
Wilson, President, 136 f., 141 f., 147, 

149, 150 

Young, Allyn, 3 n. 



THE END 



Printed in Great Britain by R. & R. Clark, Limited, Edinburgh. 



BY THE SAME A UTHOR 

THE ECONOMIC CONSEQUENCES OF 
THE PEACE 

First published in London, December 1919, and afteriuards re- 
printed in French, German, Italian, Spanish, Dutch, Flemish, Danish, 
Swedish, Rumanian, Russian, and Chinese, these editions, of which the 
chief are mentioned below, amounting in all to 140,000 copies. 

1. The Economic Consequences of the Peace. 

London : Macmillan and Co., 1919. 8s. 6d. net. 

2. The Economic Consequences of the Peace. 

London: Labour Research Department, 1920. [Out of print.] 

3. The Economic Consequences of the Peace. 

New York : Harcourt, Brace and Co. 1920. 

4. Les Consequences economiques de la Paix. Traduit 

de l'Anglais par Paul France. 

Paris : Editions de la Nouvelle Revue Francaise. 1920. 

5. Die wirthschaftlichen Folgen des Friedensver- 

tragens. Ubersetzt von M. J. Bonn und C. Brinkmann. 

Miinchen : Duncker und Humblot. 1920. 

6. De economische Gevolgen van den Vrede. Met een 

Inleiding van Mr. G. Visserig. 

Amsterdam : Uitgevers-Maatschappij Elsevier. 1920. 

7. Le Conseguenze economiche della Pace. Traduzione 

di Vincenzo Tasco. Prefazione di Vincenzo Giuffrida. 

Milano : Fratelli Treves. 1920. 

8. Fredens Ekonomiska Foljder. Oversattning av Evert 

Berggren. 

Stockholm : Albert Bonnier. 1920. 

9. Las Consecuencias ECONdMiCAS de la Paz. Traducci6n 

por Juan Una. 

Madrid : Calpe. 1920. 



[ 2 ] 

10. De economische Gevolgen van den Vrede. Vlaamsche 

Uitgave vertaling van G. W. 

Brussel : Uitgeverij Ons Vaderland. 1920. 

11. Urmarile economice a le Pack. 

Bucaresti : Editura Viata Romineasca. 1920. 

12. Ekonomitjeskija Posledstvija Mira. 

Stockholm : W. Tullbergs Boktryckeri. 1921. 

PRESS NOTICES 

THE NATION, Dec. 13, 1919.— "This is the first heavy shot that 
has been fired iu the Avar which the intellectuals opened on the statesmen the 
moment they realized what a piece of work the Treaty was." 

WESTMINSTER GAZETTE, Dec. 20, 1919. — "Mr. Keynes has 
produced a smashing and unanswerable indictment of the economic settle- 
ment. ... It is too much to hope that the arbiters of our destinies will read it 
and perhaps learn wisdom, but it should do much good in informing a wide section 
of that public which will in its turn become the arbiters of theirs." 

SUNDAY CHRONICLE, Dec. 21, 1919.— " No criticism of the Peace 
which omits, as Mr. Keynes seems to me by implication to omit, the aspect of it 
not as a treaty, but as a sentence, has any right to be heard by the European 
Allied peoples." 

THE SPECTATOR, Dec. 20, 1919.— "The world is not governed by 
economical forces aloue, and we do not blame the statesmen at Paris for declining 
to be. guided by Mr. Keynes if he gave them such political advice as he sets forth 
in his book." 

THE TIMES, Jan. 5, 1920. — "Mr. Keynes has written an extremely 
' clever ' book on the Peace Conference and its economic consequences. ... As 
a whole, his cry agaiust the Peace seems to us the cry of an academic mind, 
accustomed to deal with the abstractions of that largely metaphysical exercise 
known as ' political economy,' iu revolt against the facts and forces of actual 
political existence. . . . Indeed, one of the most striking features of Mr. Keynes's 
Dook is the political inexperience, not to say ingenuousness, which it reveals. 
... He believes it would have been wise and just to demand from Germany 
payment of £2,000,000,000 'in final settlement of all claims without further 
examination of particulars.' " 

THE ATHENMUM, Jan. 23, 1920. — "This book is a perfectly well- 
equipped arsenal of facts and arguments, to which every one will resort for years 
to come who wishes to strike a blow against the forces of jDrejudice, delusion, and 
stupidity. It is not easy to make large numbers of men reasonable by a book, 
yet there are no limits to which, without undue extravagance, we may not hope 
that the influence of this book may not extend. Never was the case for reason- 
ableness more powerfully put. It is enforced with extraordinary art. What 
might easily have beeu a difficult treatise, semi-official or academic, proves to be 
as fascinating as a good novel." 



[ 3 ] 

DAILY NEWS, Dec. 20, 1919.— "Mr. Balfour advocates the continuance 
of the Governments which made the gigantic muddle of the Peace Treaty, on the 
ground that the muddle consequent upon it still continues. . . . Mr. Keynes 
saw it all going on from the inside. He has written an unforgettable, shattering 
account of it. He prophesied the result, and the reality is crowding hard upon 
his prophecy." 

MONTREAL UNIVERSITY MAGAZINE, April 1920.— "At first read- 
ing the book was a disappointment. It was no revelation from heaven. It was 
the plainest statement of fact. Upon further reading it was easy to see why 
M. Poincare was disturbed. It is a disturbing book. Persons who are learned in 
forgotten controversies will revive for it the epithet 'devilish,' as having the 
definitive value the term possessed when it was applied to the writings of Gibbon, 
Darwin, Huxley, and Matthew Arnold." 

FORTNIGHTLY REVIEW, March 1, 1920.— "Mr. Keynes's book has now 
been published three months, and no sort of official reply to it has been issued. 
Nothing but the angry cries of bureaucrats has been heard. No such crushing 
indictment of a great act of international policy, no such revelation of the 
futility of diplomats has ever been made." 

QUARTERLY REVIEW, April 1920.— "Few, if any writers on public 
finance or on the dismal science of Political Economy have leaped so rapidly 
into fashion and celebrity as Mr. Keynes. Half a century after Adam Smith's 
death, when Sir Robert Peel's Cabinet was converted from Protection to Free 
Trade, not a single member of it had read TJie Wealth of Nations. Neither 
Malthus, Ricardo, Karl Marx, Bastiat, Friedrich List, Bagehot, Jevons, Henry 
George, nor any other economists who have disclosed unsuspected truths, exposed 
popular fallacies, or invented potent fictions, ever took the City and the West 
End by storm as Mr. Keynes has done by a single stroke." 

TIMES LITERARY SUPPLEMENT, April 29, 1920.— "Mr. Keynes . . . 
has violently attacked the whole work of those who made the Treaty in a book 
which exhibits every kind of ability except the political kind. . . Mr. Keynes 
knows everything except the elements of politics, which is the science of discover- 
ing, and the art of accomplishing, the practicable in public affairs." 

TIMES ("Annual Financial and Commercial Review"), Jan. 28, 1921. — 
" The almost unhealthy greed with which Mr. Keynes's book on The Economic 
Consequences of the Peace was devoured in a dozen countries was but a symptom 
of the new desire to appreciate, and, if possible, to cope with, the economic con- 
sequences not only of the peace but of the war." 

LIVERPOOL COURIER, Feb. 2, 1921.— "In the eyes of the world— at 
least, of the world that is not pro-German — the reparation costs are wholly in- 
adequate. It is true that in the eyes of Mr. J. M. Keynes it is wicked to charge 
Germany with the cost of war pensions, but we imagine that the average man 
with a simple sense of simple justice does not agree with Mr. Keynes." 

" Realist " in the ENGLISH REVIEW, March 1921.—" The operation of in- 
demnity-payment must be followed through to its remorseless end. . . . The 
cry 'Germany must pay ' has still a good healthy sound about it." 

ENGLISH REVIEW, June 1921.— "What Mr. Maynard Keynes predicted 
in his remarkable book is coming only too true. All over Europe the nations 
are standing to arms, thinking boundaries, while trade languishes, production 
stagnates, and credit lapses into the relativities." 



[ 4 ] 

Joseph P. Cotton in the EVENING POST, New York, Jau. 30, 1920.— " Mr. 
Keynes's book is the first good book on peace and the reconstruction of Europe. 
The writing is simple and sincere and true ... a great book witli a real 
message." 

Paul D. Cuavath in the SUN AND NEW YORK HERALD, Feb. 2, 
1920. — "No English novel during or since the war has had such a success as 
this book. It should be read by every thoughtful American. It is the first 
serious discussion of the Peace Treaty by a man who knows the facts and is 
capable of discussing them with intelligence and authority." 

Harold J. Laski in the NATION, New York, Feb. 7, 1920.— "This is avery 
great book. If any answer can be made to the overwhelming indictment of the 
Treaty that it contains, that answer has yet,! to be published. Mr. Keynes 
writes with a fulness of knowledge, an incisiveness of judgment, and a 
penetration into the ultimate causes of economic events that perhaps only 
half-a-dozen living economists might hope to riva'. Nor is the manner of his 
book less remarkable than its substance. The style is like finely-hammered 
steel. It is full of unforgettable phrases and of vivid portraits etched in the 
biting acid of a passionate moral indignation." 

F. W. Taussig, Harvard University, in the QUARTERLY JOURNAL OF 
ECONOMICS, Feb. 1920. — "Mr. Keynes needs no introduction to economists. 
The high quality of his work is known. This book shows the sure touch, the wide 
interests, the independent judgment, which we expect. It shows, also, fine 
spirit and literary skill. . . . Coming to the economic provisions of the Treaty, I 
find myself in general accord with what Mr. Keynes says. He makes out an 
estimate of what Germany can do in the way of reparation. . . . The maximum 
cannot, in his judgment, exceed ten billions of dollars. Some such figure, it is 
not improper to say, was reached independently by Professor A. A. Young in his 
estimates for the American financial advisers." 

FINANCIAL WORLD, New York City, Feb. 16, 1920.— "There is a 
thousand dollars of information in it for the average business man." 

Frank A. Vanderlip in CHICAGO NEWS, March 3, 1920.— "I regard it 
as the most important volume published since the Armistice. It is certain to have 
a profound effect on world thought. It is a deep analysis of the economic structure 
of Europe at the outbreak of the war, a brilliant characterisation of the Peace 
Conference, a revealing analysis of the shortcomings of the Treaty, a dissection of 
the reparation claims, done with the scientific spirit and steadiness cf hand of a 
great surgeon, a vision of Europe after the Treaty, which is the most illuminating 
picture that has yet been made of the immediate situation on the Continent, and, 
finally, constructive remedial proposals. Every chapter bears the imprint of a 
master hand, of a mind traiued to translate economic data, and of absolutely 
unfaltering courage to tell the truth." 

Alvin Johnson in the NEW REPUBLIC, April 14, 1920.— "There has been 
no failure anywhere to recognise that Keynes's Economic Consequences of the Peace 
requires an ' answer. ' Too many complacencies have been assailed hy it. . . . 
What progress are his critics making in their attack on it ? . . . There is sur- 
prisingly little effort made by American reviewers to refute the charge that the 
Treaty is in many respects in direct violation of the preliminary engagements, 
nor is anywhere a serious attempt made to show that those engagements were not 
morally binding. . . . The critics have not seriously shaken Keynes's characteriza- 
tion of the Treaty. They have not been able to get far away from agreement 
with him as to what the Treaty should have been. They admit the desirability 
of revision." 



[ 5 ] 

CINCINNA TI ENQUIRER, April 24, 1920.—" Such superficial books as that 
of J. M. Keynes are the work of most dangerous pseudo-idealists or hidebound 
' liberals.' Nine times out of ten their authors are disgruntled, egotistical, clever 
' mugwumps ' with that tyrannous, schoolmasterish habit of mind which prefers 
the real or apparent enforcement of its ' cure-alls ' to the attainment of plain 
truth and justice." 

DETROIT FREE PRESS, Nov. 21, 19-21. — " Only once have I seen 
Viviani go into action gradually. It was after his last trip to the United States. 
He was talking in a subdued conversational tone when suddenly he thought of 
John Maynard Keynes's book, T/ie Economic Consequences of the Peace. His 
face, hitherto motionless, twitched a little. His words accelerated slowly. The 
current of his emotion spread curiously through the muscles of his whole body, 
uutil the figure which had been relaxed from head to foot became tense in every 
fibre. In a moment he was denouncing, with the sonorous blast of his anger, the 
book which he said lie had encountered in every country in the New World, 
as ' a monument of iniquity,' a monster which confronted him everywhere 
in South or North America, and which for some (to him) incredible reason every 
one seemed to believe as the gospel truth about the pact of Versailles." 



BY THE SAME AUTHOR 

A TREATISE ON PROBABILITY 

8vo. Pp. xi + 466. I8s.net. 

London : Macmillan and Co., Ltd., 1921. 

THE TIMES. — " His book will certainly add to his reputation, aud is, indeed, 
in our opinion, the best book he has yet written." 

THE SCOTSMAN. — " Difficult as the subject is, Mr. Keynes's exposition of it 
is a masterpiece of clearness, and it is possible for the general reader to follow his 
argument with little difficulty." 

MANCHESTER GUARDIAN. — "Mr. Keynes's book is undoubtedly one 
of first-rate importance, and it is especially valuable on account of the extension of 
its subject beyond the bounds of purely mathematical probability." 

NEW STATESMAN.— "His book will at once be ranked among the most 
important contributions to the subject." 

NEW WITNESS. — "The average reader who dips into Mr. Keynes's latest 
volume will put it down hastily. On nearly every page there are fearsome- 
looking mathematical formulae and algebraic equations. . . . And the average 
reader will do himself aud Mr. Keynes an injustice." 

SPECTA TOR.— "Professor Keynes's equations demand a mental activity 
which does not accord well with reading. . . . But if the book is in some ways 
forbidding, it contains a great deal that the general reader will find both interesting 
and exhilarating." 

Prof. PiGOoin ECONOMIC JOURNAL. — " The problems which Mr. Keynes 
has touched he has not only illuminated with a marvellous lucidity of style, but 
has also substantially advanced." 



[ 6 ] 



BY THE SAME AUTHOR 

INDIAN CURRENCY AND FINANCE 

8m Pp. viii + 263. 1s.6d.net. 

London: Macmillan and Co., Ltd., 1913. 

ECONOMIC JOURNAL.— "The book is, and is likely long to remain, the 
standard work on its subject. . . . While academic students will be grateful for 
this acute and informing work, it will be read with as much interest, and perhaps 
even greater appreciation, by men of business and affairs." 

SPECTATOR. — "Mr. Keynes's careful and disinterested study of the 
monetary facts of twenty years, and his methodical marshalling of facts and 
figures, will be useful even to those — and they will probably be few — who are 
not convinced by his reasoning." 

CLARE MARKET REVIEW.— "By his really masterly treatment of the 
Indian currency system, the author has made a very valuable addition to our 
economic literature. . . . Mr. Keynes has succeeded admirably in both of the 
chief tasks which the writing of his book involved — those, namely, of explaining, 
and of upholding, the system." 

ECONOMIST. — " A searching, well-informed, and admirably lucid survey." 

BANKERS' MAGAZINE. — "Written in an attractive manner, without 
undue repetition or employment of charts or tables, the work is of value to all 
students of currency matters." 















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